Which route to offshore investment?
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.”
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