OVER­SEAS?

With credit down­grades and po­lit­i­cal tur­moil, in­vestors might be wary of spend­ing their money lo­cally, writes An­gelique Ruz­icka

CityPress - - Business -

You could be for­given for won­der­ing if your South Africa-based in­vest­ments will out­per­form fol­low­ing the re­cent down­grades to “junk” sta­tus, the Cab­i­net reshuf­fle and calls for Pres­i­dent Ja­cob Zuma to step down. The fu­ture sounds some­what murky, too. South Africa rep­re­sents less than 1% of the global econ­omy and ex­perts are ex­pect­ing less than 2% growth in GDP per an­num over the next two years, which means in the short term, in­vestors can’t look for­ward to any stel­lar re­turns.

Ac­cord­ing to Old Mu­tual, high-net-worth in­vestors are mit­i­gat­ing the risks by in­creas­ingly tak­ing ad­van­tage of their al­lowances to in­vest out­side of South Africa. The ques­tion is: should you do the same even if you’re not that well off?

If you haven’t got any off­shore ex­po­sure, the sim­ple an­swer is yes, be­cause di­ver­si­fi­ca­tion (vary­ing your in­vest­ment port­fo­lio) is key. “South Africa as a global uni­verse is very small. As a long-term in­vestor, you should have 60% of your money ex­posed off­shore in a growth port­fo­lio. You get that through the MSCI world in­dex, which has beaten most of the fund man­agers and the JSE Top 40,” ex­plains Eu­gene Ma­ree, founder and di­rec­tor of fi­nan­cial ser­vices tech­nol­ogy com­pany, Wealth­port.

Be­sides meet­ing your need for di­ver­si­fi­ca­tion, in­vest­ing off­shore can also open up more op­tions and op­por­tu­ni­ties. For in­stance, if you want to in­vest in the phar­ma­ceu­ti­cal sec­tor of the FTSE/JSE, the op­tions are lim­ited to three com­pa­nies: Aspen, As­cendis and Ad­cock In­gram.

“How­ever, within global mar­kets there is a se­lec­tion of over 60 phar­ma­ceu­ti­cal com­pa­nies, and that’s just on the Lon­don Stock Ex­change. Not only do your in­vest­ment op­tions in­crease ex­po­nen­tially, but in­vestors are also able to hedge against the volatil­ity of the rand,” ex­plains Wayne Sorour, head of Old Mu­tual In­ter­na­tional SA.

But Ma­ree warns that, if you are close to re­tire­ment or set on re­main­ing in South Africa, you should have enough money to live off and to pay for your ex­penses. “As a re­tired in­vestor, you should al­ways have a good por­tion of your cap­i­tal back home and avail­able to you.

“Re­mem­ber that the cost of liv­ing is go­ing up and it’s pos­si­ble that interest rates will too. You have to be wary of how much you are tak­ing off­shore,” he says. IS THERE A NEED FOR PANIC?

With all the bad news about South Africa swirling around you’re prob­a­bly won­der­ing if in­vest­ing off­shore makes sense to avoid fur­ther po­lit­i­cal heat and ral­lies in the cur­rency. Ma­ree points out that it is South African in­vestors that are far more “doom and gloom” about their coun­try than for­eign in­vestors.

He dis­agrees with those who be­lieve it’s a cut-and-run sit­u­a­tion. “The op­ti­mist in me be­lieves this could end quite quickly and if you take a tim­ing chance, you could be on the wrong end of this. With the right po­lit­i­cal will we could change all of this. Some coun­tries have got out of down­grades more quickly than what was ex­pected. We will suf­fer in the short term, but South Africans are a re­silient bunch. I am op­ti­mistic and I think we will get out of this.” HOW CAN YOU IN­VEST OFF­SHORE?

If you still think that in­vest­ing off­shore is the right thing to do to avoid all the chaos or if you sim­ply want to di­ver­sify your as­sets, then it’s pos­si­ble to do so in several ways. A South African res­i­dent over the age of 18 has two al­lowances to take ad­van­tage of over a one-year pe­riod, which en­ables him or her to in­vest abroad.

“The sin­gle dis­cre­tionary al­lowance of R1 mil­lion can go into any ac­count off­shore and you don’t need tax clear­ance. The next al­lowance is called the for­eign in­vest­ment al­lowance up to R10 mil­lion, which you need a tax clear­ance cer­tifi­cate for,” ex­plains Richard Bed­dow, man­ag­ing di­rec­tor and founder of Forex Peo­ple, one of the largest in­de­pen­dent for­eign ex­change bro­ker­ages.

There is an­other way to get even more out of the coun­try. You can go to the Re­serve Bank and ap­ply for a cer­tifi­cate of com­pli­ance that al­lows you to put as much as you want over and above the R1 mil­lion and the R10 mil­lion. But again, you would need to get tax clear­ance if you go for this op­tion.

An in­di­vid­ual’s part­ner or spouse would also have the same al­lowances avail­able to them. So, cou­ples can ef­fec­tively send out R2 mil­lion with­out be­ing asked ques­tions by the SA Rev­enue Ser­vice (Sars) or R20 mil­lion or more with tax clear­ance.

Bed­dow warns that get­ting the R10 mil­lion cer­tifi­cate or the cer­tifi­cate of com­pli­ance can be an oner­ous task. “There is a fairly rig­or­ous au­dit that Sars will do so your tax af­fairs have to be up to date.

“The money that you are send­ing has to be com­men­su­rate with your de­clared earn­ings or you need to provide proof of how you came across th­ese funds.”

In­vestors have several op­tions to con­sider when in­vest­ing abroad. You can in­vest di­rectly or via a rand-de­nom­i­nated off­shore or as­set-swap fund.

How­ever, if you are go­ing to in­vest off­shore, bear in mind that your money may not al­ways be ac­ces­si­ble, so make sure that it’s money you are able to part with for some time.

Bruce Flem­ming of Old Mu­tual Pri­vate Wealth and fi­nan­cial plan­ner of the year in 2016 ex­plains some of the down­sides. “If you are putting your money into a bank ac­count off­shore, you will be lucky to earn over 0.3%. If you put it in a wrap­per or any­thing else, you may be ob­li­gated to in­vest for a fixed pe­riod of time. You can usu­ally take one with­drawal or one loan against it, but then again, if you are in­vest­ing money off­shore, you want to do it for the long term, rather than bring­ing it back every few months.”

Ul­ti­mately, if you do in­vest off­shore you also have to take into con­sid­er­a­tion the needs of your fam­ily and not just your need to ob­tain stel­lar re­turns or di­ver­si­fi­ca­tion. You need to think of the tax im­pli­ca­tions and es­tate plan­ning con­se­quences. So, take care to en­sure you have the right ad­vice and the right amount of funds to lean on if times get tough.

“All of th­ese fac­tors can im­pact the ul­ti­mate suc­cess of an in­vest­ment. For ex­am­ple, if an in­vestor with off­shore as­sets were to pass away, there may be con­se­quences of not hav­ing an off­shore will.

“This is where an ad­viser can add a great amount of value in de­ter­min­ing what ve­hi­cle would be best for each spe­cific client, based on their fi­nan­cial po­si­tion and re­quire­ments,” adds Sorour.

DI­VER­SI­FI­CA­TION In­vest­ing off­shore can open up more op­tions and op­por­tu­ni­ties

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