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Want to invest offshore? You need to consider the full picture

2020-02-13 13:55

To say that the South African investment landscape for this year is unpredictable would probably be an understatement.

In uncertain times such as these, when the prophets of doom are a dime a dozen and all around you the cries of “jump ship” are loud and clear, the only solid thing you can rely on regarding any advice you’re given is that it is bound to be contradictory.

You’re going to have to arm yourself with common sense and kick up your understanding of global markets a notch before you can even begin to consider any kind investment strategy, offshore or local.

First things first. Start by defining a clear investment objective with a definite view on investing locally or abroad. Sounds complicated doesn’t it?

But it actually isn’t.

You simply need to match how your money is invested and how you see your future.

With a shift in global market indicators, this could be the ideal time to step back and review your investment portfolio and realign your strategy.

But current markets are complex and the South African market is extremely unstable right now.

With SAA on the brink of collapse and the situation with Eskom, a potential downgrade by Moody’s Investors Service this year could definitely become a reality.

This would see the US dollar rate skyrocket and the rand spiral completely.

If investors want to protect their money, they should seriously be considering international investments.

Although it is very difficult to predict, the current markets are telling us that local investments could become very problematic.

We should certainly remain open to the idea of looking outside of our borders for opportunities whilst also diversifying investments.

At the end of the day, one needs to keep sight of the fact that any rands that we will be holding should still have value.

When it comes to taking cues from central banks on the ideal investment strategy, we definitely need to look at the bigger picture.

There is a lot going on, not only globally, but also in South Africa.

Generally speaking, when interest rates go up, currencies strengthen until interest rates go up so much that they become too high and then currencies usually hit a plateau.

In this regard, one shouldn’t necessarily be looking at central banks, but more at sources such as Moody’s, the situation at Eskom, what is going on with US President Donald Trump, Brexit, the coronavirus outbreak ... These are all substantial factors that affect the market.

Central banks just simply aren’t that relevant in light of these massive global occurrences these days.

In terms of the devaluation of the rand following a Moody’s credit rating downgrade to junk status and which currencies or assets offer the safest haven for local investors, my only advice is that one should diversify as much as possible.

If for example, we think generally that the world isn’t the safest place, then perhaps gold is a safe haven. Investors need to do their research and decide what kind of risk it is that they want to take.

Yes, it is common knowledge that geopolitics, trade and elections influence global financial markets, but none of us know to what degree exactly.

Perhaps another consideration would be international stocks such as Amazon or Microsoft or other companies that have historically performed well.

It really all boils down to personal objectives and what one is hoping to yield in returns.

It is very difficult to gauge returns across global assets and markets this year because we simply just never really know. We are on the precipice of a potential market collapse that has been coming for years, but yet it still hasn’t happened.

We don’t really know what is going to affect the markets. Traditionally, a return of anything internationally, above 5% is seen as very good, in fact, 5% to 20% is where you should be aiming.

If someone is offering you 100% the chances are that they’re not the most reliable source. Remember, if you can make 100% you can also definitely lose 100%.

You need to be aware of the markets that you’re getting into, certainly the margin yarded accounts such as those offered by CM Trading, because the leverage offered makes them slightly riskier, but also a lot more profitable.

Investors in those kinds of accounts will be looking for much bigger returns because the risk is higher.

When it comes to allocating assets given the market dynamics at play, it really would be prudent not to put all your eggs in one basket, especially a local basket.

Again, it’s just a case of diversifying risk.

Yes, it is common knowledge that geopolitics, trade and elections influence global financial markets, but none of us know to what degree exactly.

All we are sure of is that these factors form the basis of financial markets so they will always play a significant role in affecting them.

The key players internationally determine the markets, whether people agree or disagree.Take Brexit, for example.

How are the UK companies going to run a trade deal following Brexit? Who will they make deals with and how will they make it?

All these factors are unknown, and all affect the markets substantially.

Trends that institutional investors and strategists are watching are basically all of the above-mentioned factors.

The volatile economic state of South Africa, what is going to happen with Eskom, with SAA and then internationally the US elections, the coronavirus crisis in China and Brexit are the big ones to keep on your radar.

All that can really be reiterated is to not make knee-jerk decisions.

Many of the changes that you make to investments cannot be undone and they can cost you a large amount of money. It’s vitally important that you do your homework now more than ever.

Many investors jump into offshore investing headfirst, only to find that the returns are substantially less than predicted while others are laughing all the way to the bank.

We would all like to magically transform our funds through savvy offshore investment, but it would be a hard pill to swallow if an impulse move is made and the outcome is less than rosy.

  • Daniel Kibel is the founder and director of CM Trading

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March 29 2020