Many factors to consider before investing offshore?

The current market outlook is stressful for South Africans who are looking to invest. On April 6, 2020, the rand was trading at R19,26 to the US Dollar but by November 27, SA s currency had

’ strengthened significantly against the greenback to R15,19, at the time of writing, its best level since the first week of March.

Craig Kiggen, Consolidated Wealth s MD, says this strengthening

’ of the rand leads to a question that is regularly fielded by financial advisers: should a client invest locally or take their money offshore and when? The answer he says is not straightforward as there are many factors that need to be taken into consideration.

For a client looking to invest in the long-term, a well-diversified portfolio that includes both Emerging Market exposure and offshore investments will help them to achieve their goals,” Kiggen explains. Buying asset classes at the “right price is however critically important and today, given what is happening with the rand, sending a part of your investment strategy offshore is worth more than just modest consideration.

”

Kiggen says there are several short-term factors that are currently dominating the rand s

’ movements:

Over the past five months,

SA s current account went into

’ surplus as commodity prices (SA s biggest export) were

’ strong and the oil price (SA s

’ biggest import) was very low. During November however, this trend swung and oil is now up by 27%;

The US Dollar is somewhat weak;

The investment world turned bullish for Emerging Markets post the US election. This can be attributed to the fact

Biden will most likely bring some stability to America / China trade relations and as a result, a larger US economic stimulus is expected; and

The international emergency loans flowing into SA during Covid-19 had to be converted to rands, which has provided a synthetic short-term boost for the currency.

Another point for investors to note, says Kiggen is that since June the Emerging Markets Index

has been flat, while the rand kept on surging as per the factors already outlined.

It s crazy and won t last. According

’ ’ to our analysts, this current wave of liquidity and vaccine-induced bullishness could push the rand to 14.50 even. We believe however, that the rand will revert back to a long-term mean. Simply put, it is a buying opportunity to externalise some of your local cash,” he explains.