Which route to off­shore in­vest­ment?

Financial Mail - Investors Monthly - - Feature: Offshore Investing -

Ade­ci­sion to in­vest off­shore is hardly a sim­ple one, writes Jo­hann Barnard. Hold­ing cash abroad will de­liver low to no growth, un­less the rand de­pre­ci­ates. Gov­ern­ment bonds are in the same ter­ri­tory and global eq­ui­ties are hardly offering great value.

So where to for lo­cal in­vestors want­ing to build their global port­fo­lios?

Pi­eter Hugo of Pru­den­tial Unit Trusts prob­a­bly sums it up best with his anal­y­sis that no sin­gle as­set classes is “scream­ingly cheap”.

“If you look at as­set classes off­shore, cash is yield­ing low, gov­ern­ment bonds are yield­ing neg­a­tive rates and are ex­pen­sive, there are pock­ets of cor­po­rate bonds that are pro­vid­ing bet­ter op­por­tu­ni­ties al­beit at higher risk and prop­erty seems mostly fully val­ued, again with some pock­ets pro­vid­ing in­ter­est­ing op­por­tu­ni­ties,” he says.

This spread of as­set classes would cover the tra­di­tional routes that in­vestors could con­sider. The ques­tion of which of­fer the best value, how­ever, ap­pears to come down to se­lec­tive picks rather than an out­right nod for one as­set class over another.

Stephen Mein­t­jes of Mo­men­tum SP Reid Se­cu­ri­ties says growth in the val­u­a­tion of eq­ui­ties is be­ing driven by the search for yields, which are no longer be­ing de­liv­ered by gov­ern­ment bonds as cen­tral banks ap­pear to be con­tin­u­ing their pol­icy of mon­e­tary ac­com­mo­da­tion to drive eco­nomic growth.

“As for cur­ren­cies, with the US econ­omy in bet­ter shape than most, the dol­lar would tend to be stronger, which would be helped by even one more in­ter­est rate hike. The yen could also be spec­tac­u­lar, but peo­ple have been wait­ing for the Nikkei to turn around for decades,” he says.

“The US econ­omy, con­trary to ex­pec­ta­tions, is plod­ding along steadily, but its eq­uity mar­ket is vast with plenty of win­ners and so you should be in­vested in it to some ex­tent.

“There is a lit­tle less con­fi­dence in Europe be­cause of Brexit and a lack of struc­tural re­form, but I’m in­clined to think it will sort it­self out. In China, you would want to avoid in­fra- struc­ture and steel-ori­en­tated stocks but maybe look at stocks in the new econ­omy that are con­sumer-fac­ing.”

For Galileo Cap­i­tal’s War­ren In­gram, it re­mains a mat­ter of choos­ing care­fully to max­imise re­turns.

“By looking to in­vest off­shore you might be jump­ing from the fry­ing pan into the fire as the sit­u­a­tion in the global econ­omy, es­pe­cially in de­vel­op­ing economies, is not as rosy as it was a year ago.

“I would be very se­lec­tive when looking at these op­tions and prob­a­bly re­vert to eq­ui­ties as the as­set class of choice. Not be­cause they of­fer value but be­cause they are the least neg­a­tive at the mo­ment. It is ra­tio­nal to di­ver­sify your port­fo­lio, but there is lit­tle truth to eq­ui­ties in other mar­kets offering in­cred­i­ble value.

“The only op­por­tu­ni­ties we see at the mo­ment are the big emerg­ing mar­kets, like In­dia, which looks a bet­ter in­vest­ment des­ti­na­tion than it had pre­vi­ously. You should place 10%-15% of your off­shore al­lo­ca­tion in the large emerg­ing mar­kets.”

Pic­ture: iS­TOCK

Lo­cal in­vestors want­ing to build their global port­fo­lios should be se­lec­tive, as the world’s econ­omy is not as rosy as it was a year ago.

Stephen Mein­t­jes … search for yields

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