GETTING STARTED
Getting started in
offshore
investments
How to invest in global real estate
AMY STEADMAN
Investing in offshore property diversifies your portfolio and
earns you income in foreign currencies. But first-time investors
need to be prepared before they take the leap into global real
estate.
The benefits of investing offshore
Diversification = optimised portfolio
The primary benefit of investing offshore is the
diversification it provides across countries, companies
and asset classes. While the expected rate of return
remains the same, it reduces the risk involved by
spreading the risk across many different investments,
while optimising your portfolio simultaneously.
Offshore equities contribute to reducing the risk in
the local equity market.
Opportunities for growth
The stocks listed on the JSE represent only 1% of the
world’s total listed equity market capitalisation. This
means you are missing out on the other 99% of the
global equity universe. Many fast-growing industries
are under-represented on the local exchange.
These include pharmaceuticals, biotechnology
and alternative energy amongst other world-class
companies.
South Africa is an emerging market and diversifying
into developed markets can potentially offer more
stable growth as developed markets are often driven
by different macro factors. Asian economies are
said to offer lucrative growth potential, giving your
portfolio the potential to generate higher returns
than those in the domestic market.
Plan your offshore goals
Do you plan on spending time outside your country?
Would you like to eventually retire abroad or send
your children to schools outside of South Africa?
Then offshore exposure could prove invaluable.
Investments in currencies like the US dollar, Euros or
Yen act as a protection against the depreciating Rand.
This said, it is not advisable to use your offshore
investments in speculating currency movements, but
rather to ensure a globally diversified portfolio.
Return on investment
What’s important is to define your long-term
investment goals. The offshore portion of your
portfolio will be larger if you want a higher targeted
investment return, and as such a higher risk is
required. If you want an investment return of +7% for
example, you would need to invest 30-40% offshore.
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OFFSHORE GUIDEBOOK 2020
A return target of +6% is more in line with a “balanced”
fund of around 30% invested offshore. These are
only guidelines and the exact proportion should be
identified for your own long-term requirements.
According to Regulation 28 of the Pension Funds
Act, one is allowed a maximum offshore exposure of
25% (excluding Africa) and another 5% in Africa for
retirement purposes.
Statistics show that investors who hold SA equities
are also gaining offshore exposure through local
companies with offshore operations. Over fifty
percent of revenue from JSE-listed companies comes
from outside South Africa.
Those concerned about the political or social
stability in South Africa would benefit from having
a portion of their investment portfolio offshore, as it
helps mitigate the associated investment risks.
The practical side of things
It’s useful to understand the practical side of investing
offshore. How does an investor go about their
offshore goal and what are the options? Here are a
few tips and strategies to get the ball rolling:
Open a bank account
Your first step is to open a bank account in a foreign
country; however, it does not need to be an interest-
bearing account. If you open a dollar-denominated
bank account and you invest $100 into that account
while the rate is R10 to the dollar, and the rand
weakens to R12 to the dollar, your investment will
have increased to R120 effectively.
It’s important to consult with a foreign exchange
expert before opening an account offshore. He/she
will assist you in considering minimum deposits, the
tax requirements (both South African and offshore),
which countries to consider, and fee structures in
place.
It would be an ideal starting point for South
Africans working overseas and being paid in foreign
currency. Note that any foreign earnings exceeding
R1 million will no longer be exempt from tax for
South African residents as of March 2020.
OFFSHORE GUIDEBOOK 2020
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