Insights
By: Reyneke Van Wyk
Externalising assets - don’t be driven by fear, Reyneke van Wyk
Invest with your head and stick to long-term plan
Covid has brought pessimism in South Africa to new lows and people are right to be concerned. Even before the pandemic, the South African economy was in a technical recession with debt heading towards unsustainable levels. Add to that all that has happened over the last nine months, and it is clear that the negative effect on the economy is being and will continue to be felt for a long time to come.
At times in the past, advisers have had to argue the case to clients for the benefits of diversifying their investments offshore, helping them understand the benefits of such an approach when things were going well in South Africa. After all, for long periods, the rand was doing better than the dollar and the local market was performing better than many offshore markets.
The arguments still stand for externalising a proportion of your portfolio – surplus assets not required in the next five to ten years to maintain your lifestyle and run your domestic business. Long-term risk diversification makes sense and affords investors access to opportunities not available in South Africa. Executed in phases and for the right reasons, it should dovetail with the personal aims of the individuals or families concerned.
Today, the challenge is helping investors to keep their pessimism in check – to prevent fear being their sole reason for externalising assets and remind them that their fear might be misplaced. Even a slight improvement in the South African economy could bring a little positive momentum; suddenly things could look quite a bit better.
The next couple of years will be crucial in getting South Africa back on track. Headlines predicting the weakening of the rand over the next few years do not mean it will happen necessarily. Indeed, the currency may strengthen in the short and even medium term, and off a low base, the South African market might even outperform offshore markets. Emptying the local market of all your assets in these scenarios, therefore, may leave investors worse off.
Pessimism feeds fear, which breeds a herd mentality. And herds don’t always get it right. Investors must remain focused on their long-term plan. Emerging markets – South Africa included – could surprise on the upside and fear driven investments may result in poor investment outcomes.
Photo by Andreas Selter on Unsplash
Reyneke van Wyk is a Partner and Head of Stonehage Fleming’s Investment Division in South Africa. He looks after the investment portfolios of a number of our family clients with substantial international wealth and chairs several family councils.
Read/watch more from Reyneke
Invest offshore for the right reasons
Offshore investing for South Africans (video)
Two minutes with Reyneke van Wyk