Dip your investment toe offshore

I can’t remember who said that or where I read that quote, but never before has this statement rung more true than right now in South Africa.

South African politics and the SA economy are very much in the international spotlight.

International business TV channels are talking about the South African Rand and even our current leadership has become a topic of discussion.

But what do investors look for when seeking out investment opportunities in emerging markets?

I’d like to share with you the factors that influence foreign investment and the potential effect on a market such as ours.

So what exactly do foreign investors look for?

• Growth prospects

For this reason, investing in emerging markets will not only diversify returns, but will add a source of returns with a higher expected return.

• Exchange rate stability

One of the key risks of investing in emerging markets is currency risk.

When investing in equities denominated in a foreign currency, there is downside risk that the local currency depreciates versus the investor’s domestic currency.

This lowers the total return for the investor.

• Political risk

Political decisions by governmental leaders about taxes, currency valuation, trade tariffs or barriers, investments, wage levels, labour laws, environmental regulations and development priorities, can affect business conditions and profitability.

Similarly, non-economic factors can affect a business.

• Volatility

Volatility affects stock markets.

Emerging markets tend to be easily affected by the whims of investors.

They are often subjected to massive inflows and outflows of foreign investment as investors’ confidence and sentiment changes.

By no means am I saying that South Africa is un-investable, I am merely pointing out the “risk factors” considered by foreign investors before they spend their money in a market such as ours.

When it comes to investing, sometimes it’s prudent to think like a foreign investor. With all the “uncertainty” around SA at the moment, that time is now.

Dip your investment toe in offshore water.

By exposing yourself to some sort of offshore investment you avoid the immediate risks currently facing our local market.

Diversification

Offshore investing provides investment opportunities that are not available locally, such as different markets, sectors and specific assets not listed on the JSE, as well as exchange traded funds.

You reduce your currency risk as well as “sovereign risk”.

Theoretically, when investing in the USA or Europe, you are investing in the recovery.

You are likely to get slow, but consistent growth speeding up as each economy normalises.

Investing anywhere in the world has become so easy now, and global markets have become accessible to retail investors.

A good broker will facilitate the entire process, from opening the offshore account for you and converting your currency into that account, to executing your trades.

Also read:

• How fragile is the South African economy? How fragile are you?
• Be an international landlord
• Is purchasing property a good investment?