Taking your money offshore
A strong rand presents an ideal opportunity to invest money offshore. Tamas Kulcsár, Investment Analyst of Sanlam's Glacier explains why.
In addition to the positive impact rand depreciation has on rand-based returns from foreign assets, the investment opportunities available are even more appealing. Investors willing to invest money offshore (individuals are currently permitted to invest R2 million in foreign currency investments) have a much wider range of investment opportunities available to them than those available exclusively in South Africa. These include hedge funds, sector and region-specific mutual funds (unit trusts), managed currency funds, as well as specific investments, like energy futures and weather futures.
Diversification
The market capitalisation of the South African stock market, at R3 trillion, represents less than 1% of the global investment universe. This means that a South African investor's diversified local portfolio is not very diversified at all. Further, given that the performance of the South African market is predominantly driven by resource shares, any unexpected changes to inflation or commodity prices will impact heavily on the returns an investor receives. To diversify a local portfolio against these (very real) risks, investors should place a portion of their assets offshore.
Simpler than ever before
Taking money offshore is no longer the daunting task it used to be. Investors need only find a suitable product provider to facilitate the investment and apply for SARS tax clearance for money leaving the country.
The product provider should supply all the necessary documentation and arrange for the currency exchange. Reporting is generally in the currency of the investment, although for tax purposes, capital gains and income are usually calculated in rands.
Using a reputable, FSB-registered asset manager for offshore investments relieves much of the administrative burden and reduces potential administrative risks (lack of disclosure, embezzlement and fraud) often associated with investing in foreign markets.
Tax issues
South Africans are currently taxed on foreign interest and dividends received (annually, with a R3 000 foreign interest exemption) and Capital Gains Tax (CGT) on withdrawal from the investment. 'Roll-up' mutual funds simplify the tax reporting by incorporating interest and dividends into the unit price – in this case, only CGT would apply.
Tailored to unique needs
The amount invested offshore and the investment strategy would depend on the investor's personal circumstances. For example, an individual planning to emigrate would probably transfer most of his assets offshore (subject to emigration allowances), while an investor nearing retirement (and thus requiring income) would invest considerably less offshore.
Offshore investing is not solely for aggressive investors. While volatility caused by the fluctuating value of the rand affects daily investment values (if reported in rands), the long-term benefits of diversification and the inflation protection offered by a depreciating currency, make an offshore investment attractive for all investor risk profiles.
