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Are you sending money offshore now?

Market commentators have no crystal ball and following them blindly can cost you real money.

For the first few months of last year, many commentators and analysts were telling anyone who would listen that investors had to send money offshore urgently.

Some commentators were nearly hysterical in their forecasts while others were playing on an age-old theme of Afro-pessimism that I found distasteful and inaccurate. One year later, it is worth seeing how investors profited (or not) from following those commentators.

I hope investors can learn some lessons from the last 12 months. We need to realise that market commentators (myself included) have no crystal ball and following them blindly can cost you real money. Rather use good common sense to interrogate what you are reading and rely on the laws of financial physics to help you make the right money decisions in difficult times. 

The JSE was a star performer in dollars

You might be surprised to learn that the JSE beat the World stock markets in dollar terms in 2016. This is despite all our well-publicised political problems and economic headwinds. According to I-Net, the JSE returned 12.3% in dollar terms for 2016, while the World Index did 8.5%. Had you decided to send your money offshore at the start of 2016 and you invested in the World Index, your capital would be worth 13% less when counted in rands. You would have lost money because the rand strengthened by far more than the world markets grew. Had you remained invested in the JSE, you would have made a tiny gain of 2.6%. More to the point, you would have been more than 15% better off than those who sent their money out in January 2016.

Many commentators will argue that this is only a one-year trend but I was reminded in a talk by Bruce Whitfield that this is not a short-term phenomenon. Since 1993, investors who remained invested in the JSE would have more money now when counted in US dollars than those who invested in the World Index. Not even Nenegate was enough to reverse this trend. 

When should you send money overseas?

In February 2016, I wrote an article cautioning investors against panic and urged them to wait for the rand to strengthen before sending money out of the country. You can read the article here.

I don’t mind telling you that I received quite a few messages from readers asking if I needed the name of a good psychologist to cure my delusions. One or two readers even asked me if I was smoking some really good herbs! My view then as it is now, is that all normal markets eventually succumb to the forces of gravity. Mathematicians call this mean reversion and it nearly always causes markets to go back to their fair values if you are patient and able to wait long enough. 

During 2016 we started telling investors to consider sending money offshore when the rand reached R13.50. We further suggested that they send their money out in tranches in the event that the rand strengthens even more. I do believe that investors (especially those who have excess capital) should have a large offshore exposure. However, decisions about offshore investments should be based on your personal circumstances and not on current events. When the rand goes haywire again, try to avoid the panic, ignore the hysterical market commentators and remind yourself about the basics of mean reversion.

Warren Ingram is an executive director of Galileo Capital. 

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Won’t even attempt to reply to this dribble – see my reply in article headed “sa companies sending money offshore”

Good idea to take down-under based robertinsydney’s layperson’s advice on where to put your hard earned money over a South Africa located financial expert – NOT!

I remember seeing an interview with white Rhodesians in 1978/79 when they were convinced that everything was under control & that change would be another 50 yrs away! As we say “none so blind as those that will not see”

robertinsydney – you are a beaut with your patronising advice! I personally remember seeing many interviews in 2016 with most Brit experts who said Brexit would not happen and with most American experts who said Trump would not happen. Meaningless!

True, JustinB – just ignore that ex-saffa that needs to justify why he left. If local SA companies are investing offshore AND are still on JSE, we will earn extra Rand returns from their foreign sales.

He, unfortunately has nothing better to do than reminisce.

And here we are a year after Warren warned about the rand that could be strong. Well the rand is stronger by 24% in 14 months. LOOK OUT R12.95 on it’s way.

Be careful following the clever people blindly.

Well done Warren for the warning about just following blindly. Hope ppl have learned that once again.

Good to follow up on something written a year ago.

I wonder if Galileo Capital is losing clients because people are moving their money overseas.

Very good article. Analysts/economists cant be followed blindly. I agree that the money should be invested off-shore, but the best time to move money is when the rand is strong. Many people flushed money out of the country when Rand/dollar was near 16. Reminds me that many people buy shares near the peak and sell near the bottom. I also think there is a bright future for SA, that will be realised (i know it is not easy to see this when everything seems dark). I also think this potential will be realised in a way not being predicted by any economist or analyst at this stage. We may need to go through further pain to trigger a turn-around.

…”I also think there is a bright future for SA, that will be realised”

1994….2017? When exactly?

What is noticeable in SA, like much of Africa, sadly is the incoming leaders are more prone to the life style of Lady Antoinette and less of the likes of “”Ken” Saro-Wiwa”.

Let me offer this thought. Zimbabwe, as well as many other African states ” post liberation”, all did well in local based and dollar currencies. All the while there were ominus signs on the wall….issues around land ownership, unemployment, wild fantasies around the “great evils of white monopolistic capitol”, and presidents involved in gross self enrichment. So I ask you….why on earth will SA break its current downward trend in emulating these historic trends, and which are increasing in pace? And why invest I such a tiny economy when you have the world economy at your feet? And why are our best business leaders and companies expanding offshore at alarming rates, effectively distancing themselves from SA? Don’t be naive.

Investment decisions are long term. Short term peaks and troughs in currency, bond and stock markets are simply noise that spooks amateurs. A decision to move funds off-shore is the construct of a strategy that started many years ago. Similarly, the investment horizon should be 10-20 years. If on the day that funds are actually moved off-shore the rate is in your favour, that’s pot-luck and has no bearing on your strategy….

The questions that need to be asked in formulating strategies are – over the past 20 years or so, what has improved in SA? Is my family secure? Will I be able to educate my kids? Will they have jobs to go to? Is our healthcare in good shape? Do we have depth in our leadership? – and so on. Given the past trend how likely is the future to be radically better? For these and many other systemic reasons, corporations will continue to move operations and funds off-shore and skilled Joe Citizen will continue to emigrate.

Well, it’s like this: We have a government that in terms of competence and corruption is among the worst in Africa – and the best aren’t doing so well, either; we have a university student population that thinks education should be free, but is interested in assimilating precious little education – particularly anything that might be useful to the country in the future; we have a high school population that is progressed through the grades with a pass mark of 20-30%; we have a primary school population that is largely illiterate and innumerate, and taught by union-beholden teachers that aren’t much better qualified themselves.
In short, the present is bad, and the future isn’t going to be any better.

What I have done is taken money overseas and bought into an S&P 500 ETF(VOO) on the NYSE, whenever I have spare cash I send some over. Costs work out at about 0.2%. Any advise/ comments/ concerns with this strategy?

Well done sir – there are shares on NYSE that are absolutely hurtling upwards in US$ terms! The tech companies & construction companies in particular. Now if u can get these returns why wouldn’t u grab it?

If you took the money out more than a year ago you are possibly in a loss right now. The rand gained 24% from Jan 2016 to Mar 2017. At some time in the future you will get it back for sure. Keep it long term but Warren just pointed out not to bank on the rand falling all the time.
Taking more out only close to R12 will be a good call.

This is a clear case of waterboarding the numbers until they confess what you want to hear.
For five years and more its been a no brainer to take money offshore–the returns have been more than double the JSE and in the case of the S&P500 treble that of the JSE.
Last January the rand was trading a very weak levels against the US dollar (as a result of Nenegate), therefore Warren’s 1 year dollar return looks very poor, which suits his argument as he is known for not having recommended offshore investments.
Over 9 months, 6 months and even 3 months the comparative performance of the JSE versus S&P500 looks very different.
Offshore investing is not only a pure currency issue–its also about reducing risk and diversifying your investments.
There was a real threat that forex controls could have been implemented in December ’15 and January last year. That threat has not gone away.

This is clear case of hindsight.

It is a gift to have the benefit of hindsight. The crystal ball only worked for a few people in this case.

End of comments.

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