Why offshore diversification is essential for SA investors

Today’s investment landscape is increasingly complex for South African investors, amid heightened market volatility and political uncertainty. Offshore investing remains a critically relevant strategy for preserving and growing wealth while managing risk. Diversifying beyond South African borders is not just a luxury; it’s a necessary consideration for prudent portfolio management.

Why consider offshore exposure?

From currency fluctuations to policy shifts, the South African market has historically faced a range of economic and political challenges that directly impact local asset performance. Offshore investing offers several key advantages to navigate this unpredictability:

• Diversification of risk: Offshore assets allow investors to reduce the concentration risk embedded in their domestic portfolios. By spreading capital across global markets, sectors, and currencies, investors are less vulnerable to country-specific downturns.
• Access to growth opportunities: Many of the fastest-growing companies and sectors – especially in technology, healthcare, and consumer discretionary – are found outside South African borders. Offshore investing provides access to high-quality companies and markets that are not available locally.
• Currency diversification: Holding assets denominated in foreign currencies provides a natural hedge against the South African rand’s volatility. This can protect purchasing power and add to returns during periods when the local currency weakens.

Key market indicators for offshore investors

Successful offshore investing requires a clear understanding of certain market fundamentals and indicators:

• Global economic trends: Monitoring the health of the US and European economies, as well as emerging markets, is crucial since they heavily influence global capital flows and equity returns.
• Interest rate movements: Central bank policies, including US Federal Reserve rate decisions, shape investment returns and exchange rates. Rising rates abroad can lead to capital outflows from South Africa, impacting the rand.
• Political stability: While offshore markets are not immune to political risk, many developed markets offer greater transparency and regulatory consistency compared to emerging markets. Investors should consider geopolitical events, trade relations and regulatory environments.
• Valuation metrics: Evaluating assets on measures such as price-to-earnings ratios, dividend yields and economic growth prospects helps investors identify fair-value or undervalued opportunities offshore.

Solutions for offshore investing

For investors seeking offshore exposure, there are a multitude of options available. While direct investment offshore is an option, it is complex and includes multiple tax and regulatory requirements. As a result, many investors opt for accessing Rand-denominated investment funds with indirect access to offshore exposure. These often include multi-asset solutions and global equity offerings, each maintaining strategic allocations across various regions, sectors, and investment styles.

For example, the PSG Wealth Global Flexible Fund of Funds (FoF) provides equity exposure to both developed and emerging markets, spanning all major industries. It employs a blend of investment styles – focusing on quality, growth, and value – while also incorporating global fixed income exposure. This results in a well-diversified portfolio designed to deliver risk-adjusted returns. The fund is an ideal cornerstone for investors looking to tap into growth opportunities beyond South Africa.

Starting the conversation

While offshore investing offers a valuable avenue for diversification and growth, it should not be undertaken without considering factors such as foreign exchange risk, tax implications and regulatory requirements. Investors should engage with a financial adviser to understand how offshore exposure fits within their broader financial goals and risk profiles.

* Pask is the CIO at PSG Wealth.

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