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Investing offshore is easier than you think

by | Nov 28, 2023

It is becoming easier and more affordable for South Africans to invest in offshore funds. Pieter Koekemoer, head of Personal Investments at Coronation, has some advice for those interested in investing offshore.

Investing offshore is easier than you thinkMany investors saving to retire in South Africa through a domestic balanced fund may already have the appropriate level of offshore exposure to fund their future liabilities in rand. Recent changes to Regulation 28 mean that a retirement fund may now hold up to 45% of its portfolio in international assets.

Investors who can invest beyond what they need to fund a retirement income in rand terms will benefit from additional international exposure in their overall investment portfolio.

When we earn a salary or income in South Africa, we are all exposed to the domestic economy.  As such, country-specific challenges and the volatility of the rand can materially impact the purchasing power of our income over time, as many consumer products such as fuel, food, and technology are priced in foreign currencies and are imported.

You may also have future international expenses, such as education and travel, or plan not to retire in South Africa. In all these instances, it is sensible and probably prudent to build up a pot of capital outside of South Africa which can effectively assist in meeting your long-term financial planning objectives.

Investing offshore is accessible and simple

When looking into investing offshore, there are two different routes you can take. You could invest your rands in a South African fund that invests all or part of its underlying assets internationally, or you could convert your rands to foreigjn currency and invest directly in an offshore fund.

The latter option diversifies jurisdiction risk and allows settlement in foreign currency, making it easier to fund those future international expenses mentioned above.

Offshore investments can be funded from your existing foreign currency holdings or your annual single discretionary allowance of R1 million. This allowance is available to all South Africans over 18 without any tax clearance requirements (i.e., minimal paperwork).

You may think that you need a huge sum of money in order to start investing offshore, but this is not the case. Coronation has made its offshore funds more accessible by reducing the minimum initial investment required to $500.

Domestic banks are also making it easier and more affordable to change you rands into foreign currencies, and to open a foreign currency bank account. The emergence of global money apps such as Standard Bank’s Shyft is also making it easier to turn rands into foreign currency.

How do I choose the right fund for my future offshore expenses?

You need to go for an offshore fund range that is easy to understand and specifically tailored to meet critical investor needs, simplifying the fund selection process for new investors.

Funds that span across global markets and asset classes will be well-positioned to meet the needs of most long-term global investors, and those who are more risk averse and have shorter-term capital preservation needs can also seek out lower-risk fund alternatives.

This article was based on a press release issued on behalf of Coronation.

2 Comments

  1. The changes were not that recent – 2022 budget speech allowed the managers to move more offshore (when the ZAR was close to R15) – sadly, very few moved with most managers still preferring local assets (after bleating for years that they wanted more offshore exposure). Those that did eventually move (like Coro) did so when the rand was quite a lot weaker and what is more incredulous is that there are still more than a few managers who prefer SA with less than half of the 45% offshore exposure. We also need to talk about the fact that pretty much none of the Reg 28 funds have achieved anything close to CPI+5% from their funds and appear to have quietly removed any reference to this (traditional) benchmark. Something is not right.

    Reply
    • The average offshore allocation has risen from 28% to 40% for large managers. I know at current rand levels they are not keen to take more offshore and are seeing more value locally. But returns have certainly been disappointing – but that is not unexpected in a rapidly rising interest rate environment globally

      Reply

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Maya Fisher-French author of Money Questions Answered

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