By Qiniso Ntuli
Investors often ask the question, which is riskier, investing offshore or in one’s local stock market? In theory, investing offshore, say in a Global Equity Fund should be less risky when not taking currencies fluctuations into account. That is, the opportunity sets available in a Global Fund are far more than those that would be typically available in a local fund.
Diversification also argues on the side of a global fund as one would typically have more sectors, companies, regions to access for investment opportunities. In reality however, a global fund can experience greater negative returns than a local fund depending in the contributing factors at that time. Similarly, a local fund could experience greater negative returns than a global fund.
So what informs the decisions to invest offshore?
Having offshore investments is not too different from having a nest egg in case things go pear shaped. For African residents, the possibility of deteriorating currencies is all too familiar. Some examples of currencies that have devalued over time are; the rand, Naira, Kwanza and many more and in some instances, total collapse like the Zimbabwean dollar.
A resident in a South Africa, Angola, Nigeria would have seen their net worth in Dollar terms depreciate, essentially, when measured in global currencies, they have become poorer and in the worst case scenario like that of Zimbabwe, they would have woken up overnight and found that their wealth had deteriorated to almost nothing. Of nest eggs and global currencies . This is why it is important for individuals who can, to make sure that their wealth is not all stored in one currency.
So how do Africans access offshore opportunities?
South African residents who are 18 years and older have access to a foreign investment allowance of up to R10 million per calendar year. Before you invest offshore you will need to obtain a tax clearance certificate from SARS, get approval from the South African Reserve Bank (SARB), and convert rands into foreign currency. An additional R1 million Single Discretionary Allowance (SDA) is also available annually for investment purposes without having to obtain a SARS tax clearance certificate.
African residents excluding South Africans can access the same investment opportunities using the same companies subject to the investment allowances within their respective countries. Technology advances have made doing business a seamless process, an investor in Nigeria can interact and conclude their investment with a financial advisor based in South Africa using an asset management company that has an international presence and thus satellite offices around the world.
No one can predict how currencies will move over the long term, that said, one can sleep better knowing that in the event that factors are introduced that lead to currency depreciation ( as South Africans experienced on 09/12), one’s wealth can be protected from such events in the form of nest eggs that are in a different currency.