Off-shore investments are a popular choice for South African investors who want to take advantage of high-growth economies overseas or protect themselves against fluctuations in the Rand exchange rate. With the benefits that offshore investments seem to offer, is it always wise to invest a lot of your capital outside South Africa?
The benefits of offshore investing
Recent changes to the South African exchange controls – the laws that control how much money South African citizens can invest in other countries – mean that offshore investments can make up a large chunk of South African investment portfolios. An annual amount of R1 million can now be invested offshore without a tax clearance certificate.
- South African investors now have access to investments and pension schemes in a number of countries including the United States, Europe and Asia. The high-growth BRIC countries are also open to local investors, making it easy to invest in new and exciting markets.
- From a tax point of view, many offshore locations are much more favourable than South Africa. With lower taxes in many countries, not to mention tax-free locations like the Isle of Man, local investors could be saving a significant amount each year on investment taxes – these savings can be re-invested to produce even greater returns.
- Brokerage fees in developed markets may also be lower than in South Africa, with a large variety of investments available.
- Investors who are worried about the falling Rand may also want to invest overseas in Dollar- or Euro-denominated funds. If the Rand continues to weaken, the value of these investments back in South Africa actually increases.
Look before you leap offshore
There are many benefits to offshore investing. However, there are risks in overseas markets too – developed markets are recovering slowly, but risks related to the financial crisis are still quite real in many developed countries.
Emerging markets often see their currencies and stock markets rise and fall dramatically, especially as investment flows in and out of these markets from the first world depending on the mood of investors.
Another factor to take into consideration is that the JSE tends to perform very well when compared to other stock markets around the world. While there is no guarantee that this will be the case forever, solid returns on local stocks shouldn’t automatically be tossed aside and replaced with offshore investments – a balance of local and offshore investing is the best approach for most South Africans.
If you’d like more information on the opportunities and risks associated with offshore investments, make an appointment to see your financial advisor.