Edward West
29 October 2009
Johannesburg — THE relaxation of foreign exchange controls announced by Finance Minister Pravin Gordhan and the stronger rand offer an opportunity for investors to diversify more of their funds offshore, say analysts.
BoE Private Clients head of investments Johan van Zyl said yesterday the announcement in the government's Medium Term Budget Policy Statement this week should be welcomed as it was important to promote a free flow of assets to hedge investments in a structured and balanced way.
Association for Savings and Investment South Africa CEO Leon Campher said the relaxation of exchange controls was certain to result in more funds flowing out of SA, but he was not sure to what extent.
Typically investors invested offshore for the sake of diversification of their portfolio or if the foreign investment offered a better return than local markets. They could do this either through a locally domiciled offshore fund or through an overseas fund manager, he said.
Van Zyl said the consensus view at BoE Private Clients was that the current rand strength was not sustainable. "The rand has been among the most liquid global emerging market currencies and one of the world's most volatile. In the year until the October 23 last year, the rand weakened 34% against the comparative basket of currencies ( without Zimbabwe)."
Since then the currency had strengthened 39%. While it was still well below last year's January level, global conditions for a small, open, emerging market country like SA were less friendly, he said.
SA increasingly required foreign capital to fund the infrastructure project pipeline, while any sign of a pull-back in global economic prospects would hurt emerging markets.
He said there was no silver bullet on just how much individuals should invest offshore due to the large number of factors that needed to be taken into account when investing, but the general rule of thumb was a range that started at 20% offshore exposure.
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