The path to offshore trading
First R1m won’t require a tax clearance certificate, and will involve instead a simple transfer into a trading account
The release of Amazon’s quarterly results might have put paid to Jeff Bezos’ brief status as the world’s richest man, but the company’s status in the Fang gang appears to be intact.
The Fangs — Facebook, Amazon, Netflix and Google (via parent Alphabet) — are greatly responsible for Wall Street’s gains this year, with Facebook up 43%, Amazon up 34%, Alphabet 18% higher and Netflix 44% to the good as of last Friday.
Analysts at Goldman Sachs say “infotech and financials will continue to be the largest contributors to S&P 500 [earnings per share]. We expect both sectors will deliver the fastest earnings growth across the S&P 500 in 2017 and 2018, excluding energy.”
For Randswiss portfolio manager Gary Booysen, “these aren’t tech companies in the true sense of the word — they are more the next evolution in media”, especially in the case of Google (quarterly profit up 28%, excluding an EU antitrust fine) and Facebook (June quarterly earnings up 71%).
And Amazon? “It isn’t really a tech company, it’s a retailer that is using cutting-edge tech to beat other retailers,” he says.
Amazon and Netflix, however, trade on p:e ratios that hark back to the priciest of the Nasdaq tech bubble darlings: Amazon’s forward p:e is 133 times while Netflix sits at 122.
Facebook is comparatively cheap on a forward p:e of 31.2 and Alphabet is positively cut-price, at 26.2.
In Amazon’s case, the p:e is (almost) irrelevant to investors.
Booysen says Amazon “has always been about growth” and could return more money to shareholders, but prefers to invest in new growth areas. The Financial Times says that “investors have mostly accepted that model, but the upcoming investment phase could test their patience” as earnings this quarter are flagged to fall to anything between a loss of US$400M and a profit of $300m.
So if you’re not put off by their lofty cost, and are starting to chafe against the 351 companies on the JSE, it’s time to dip your fishing line in the vast stock market ocean offshore.
But how to go about it?
Traders Corner founder Garth Mackenzie says the first thing you’d have to do as a local South African is open an account with an offshore offering. Mackenzie uses Standard Bank’s Webtrader, an online platform that the bank launched in 2013 to feed the growing appetite for global investments.
Webtrader is essentially Saxo Bank, the mighty Danish investment house, but “whitelabelled” for Standard, as it is for almost every major financial services firm in SA which offers offshore share trading accounts.
The second step is getting your money offshore. This is probably easier than you’d imagine despite SA’S stringent exchange control regulations: your first R1m won’t require a tax clearance certificate, and will involve instead a simple transfer into a trading account which your broker will help establish.
If, however, you want to shunt up to R10m into an offshore account then you’ll have to prepare a statement of assets and liabilities and brace for a long and trying relationship with the SA Revenue Service.
Should you have more than R10m to move offshore, you’ll need Reserve Bank clearance which can take about two months, says Booysen.
Once that money is transferred, however, it’s fully externalised.
Booysen and Mackenzie say they’ve both seen a “massive” increase in demand from South Africans to buy offshore assets. These people are spooked by SA’S political deadlock and economic downturn, and frustrated by the high cost of the DBX-ETF tracker funds that have been the starting point for many investors who wanted global exposure.
Compared to five basis points charged by US group Vanguard for its ETF trackers, the DBX suite of funds cost as much as 80 basis points.
Neither are they true offshore assets — rather, they are listed tradable products on the JSE. What they do, however, is take the guesswork out. But if you’ve got time to dabble, there’s a big world waiting out there.