Now that we can, why aren’t we rushing to invest more offshore?
Are overseas markets too expensive, or is the local scene turning out to be more and more attractive?
Local investors appear not to be rushing into global markets following the increased prudential limits on offshore investments announced in last week’s budget.
In fact, institutional funds may be first off the mark, analysts said, with interest expected to be lower among retail investors.
“Although foreign exposure is an important part of any balanced investment portfolio, we have certainly not seen an increase in enquiries from clients to lift their offshore exposure,” said Afrifocus Securities portfolio manager Ferdi Heyneke.
The limits for collective investment schemes, investment managers and long-term insurers will rise, on April 1, from 35% to 40% and for retirement funds from 25% to 30%.“It presents an opportunity for investors to use [the increased limits] in future, against the backdrop of a strong rand,” Heyneke said.
Old Mutual Corporate head Malusi Ndlovu said the increase in prudential limits was pleasing, as it allowed for better diversity within funds.
Mitigating against an offshore rush is the fact that the cap for retirement fund lump-sum deductions for tax purposes remained unchanged at R350,000. “That might prevent high-income earners from contributing more as they get closer to the limit,” Ndlovu said.
Investors could benefit in future should the local currency weaken. At the same time the economy could see a greater inflow of dividends from foreign sources, which would support the rand and reduce the current-account deficit.
Although the announcement by former Finance minister Malusi Gigaba did elicit some criticism in that it supposedly favoured the wealthy, analysts say other countries often use a firmer currency as an opportunity to diversify asset risk.“Nations such as Chile and Canada also widened their investment restrictions, as confidence in the resilience of their domestic markets increased,” Schroders analyst Gavin Ralston said.
High valuations on US markets might be an added deterrent to rush into offshore investments. The Dow Jones has gained 2.8% so far this year, off a high base, after gaining 25% in 2017. However, technical analysis shows the US market only to be slightly overvalued, said Stanlib retail investment director Paul Hansen.
“What appears to be more of a factor is that investment guru Warren Buffett’s Berkshire Hathaway cannot find suitable investments at what he considers to be a fair price,” Hansen said. That might make European markets a better option.
The global backdrop remains supportive for South Africa, said Old Mutual Multi-Managers analyst Dave Mohr. “This includes strong global economic growth, firmer commodity prices, inflation that is still mild, but rising, and central banks that are careful not to overreact,” he said.