Investors still heading offshore – Glacier International

Flows suggest breakdown in relationship between rand weakness and externalisation.
During the first quarter of 2018 Glacier International has experienced its biggest quarter from an inflows point of view. Picture: Simon Dawson/Bloomberg

For long-term investors, international exposure is an important part of a sensible, well-diversified portfolio.

Often, however, the decision to externalise money from South Africa has been a knee-jerk response to rand weakness.

This was (anecdotally) confirmed by advisors who were polled about the issue at Glacier International’s Navigate Seminar in Johannesburg, with roughly 90% of intermediaries saying investors tend to externalise money when the rand is weakening.

The local currency has experienced quite a choppy ride over the last three years. It weakened to roughly R16.50 against the dollar in the wake of the Nenegate debacle at the end of 2015, appreciated to about R12.70 by mid-March 2017, was trading at roughly R14.30 by late November 2017, and strengthened to R11.50 in the midst of Ramaphoria.

Unfortunately, many an investor has severely regretted a decision to invest offshore in response to rand weakness as the local currency has often recovered quite substantially after a major blowout. Moreover, investors may have bought or sold assets at a time when they were generally expensive, which may have hampered subsequent returns. Ultimately, the decision to invest offshore should keep a range of factors in mind – including the valuation of assets investors are buying and selling and whether they actually need additional offshore exposure given their particular circumstances and investment goals.

Andrew Brotchie, managing director of Glacier International, says in the firm’s experience, offshore investment flows have generally increased quite significantly during periods of rand weakness over the last three years.

Typically, they would have expected flows to dip off when the rand strengthened – as was the case after the ANC’s general elective conference – but during the last few months the opposite has happened.

“This is actually the first time since we’ve been running Glacier International that this relationship [between rand weakness and offshore flows] has broken down to this extent.”

In fact, during the first quarter of 2018 the firm has experienced its biggest quarter from an inflows point of view.

“[This] is completely contradictory to the evidence that we’ve had previously.”

Why has this happened?

Brotchie believes this has, in part, been a response to the relatively weak returns South African investors have experienced in the local market over the last three years.

Against this background, many investors have started to explore alternative avenues in the hope of getting higher returns – one of them international markets.

But the development seems to also have been compounded by a couple of other issues.

“One is JSE concentration and the huge success of Naspers has clearly skewed the index and I think people are concerned about the overexposure within the index.”

Brotchie says another factor has been the experience investors have had within the South African sphere – including the share price meltdown of international furniture retailer Steinhoff following an accounting scandal

“I think people have started to look quite seriously at the opportunity set that they have within the South African market.”

He says their conversations with brokers suggest that there has been a strategic realignment of portfolios.

Often the decision to move more money offshore was taken after protracted discussions with advisors on how they would execute the strategy.

“I think having made these decisions in the last year or so, the period of rand strength now has been seen as a very good time for people to take advantage and use the rand strength to do a bit of restructuring.”

Brotchie says it is not clear whether the “breakdown” in the relationship between rand weakness and externalisation will become a long-term trend, but it suggests that the right type of conversations are happening between brokers and clients.



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SA is around 1% of the worldwide investment market. Why would anyone keep most of his eggs in this tiny basket? If overseas investors put ONLY a small percentage of their money into SA why would a local person/company not do the same?

Because of that thing called “Asset Liability matching”?

Indeed, outside of investments that need to be regulation 28 compliant (and those should be at the 30% maximum), one should have at least half of discretionary investments in overseas investments, even if Rand denominated investments, in my opinion.

The real facts of actual return on equity investments over the past 20 years suggest quite the opposite – S.A. listed equities (Alsi, Top 40 and equity funds) has outperform all offshore markets over any longer term period – irrespective of the effect of exchange rate volatility. Check the real facts.

I would prefer not to spread all over everything available, but rather to put 100% into the one instrument that is going to perform better than all others. The only sticky bit is identifying that one instrument.

TRUST is a word missing from this article.
Well crafted laws at Cofessa being ripped to shreds by the organ grinder with his monkey on a chain.

Very true

I would like to also add the realisation that our fund companies charge higher fees compared to EU/UK/USA

Every bit of saving helps in the long run

The former President and his comrades, some of which are still in government, and for the record – none have come to book, showed the world that product RSA was one of the most risky to invest in. Our long winded judicial system, our high crime rates, the constant threats of our land being grabbed or occupied, the one sided and restrictive labour laws in place, the ongoing daily strikes we encounter, the high tax rates in place, the excessive delays at SARS dealing with queries and tax refunds, the restrictive and punitive rules at Home Affairs for entry and exit into South Africa of travellers with children which are unique only to South Africa, the social grant system which is draining the economy – just to name a few things that Investors do not encounter when they invest in other countries are the things to consider when investing in South Africa, and conversely, when South Africans invest abroad.

Is there any link between Glacier International and Sanlam Glacier or is it two totally different entity’s?

Glacier International is a division of Glacier by Sanlam.

I agree with all the comments here.
Until the bare- faced theft that has been perpetrated by the Zuptas and Steinhoff are strongly dealt with, confidence will not return and South Africa will not recover a reputation worth investing in.
Whatever and however hard Cyril tries to encourage investment – it will be a wasted effort ( in my opinion) until there are meaningful convictions.

“Typically, they would have expected flows to dip off when the rand strengthened – as was the case after the ANC’s general elective conference – but during the last few months the opposite has happened.”

That same conference that led to the ousting of Zuma also entrenched the plan for land expropriation without compensation. Hence the short-term effect of relative Rand strength coupled with a clear early warning signal that risks remain in the long term.

Cyril may as well have shouted: Take this money and run!!

Taking your money out when the R is strong is the wise thing to do, because you get more bang for your buck.

True, but too late advise for those who took out at R16.50
Their investments would have to increase by 43% just to break-even now

If you can imagine how unnerved a priest will feel at a strip club, you will understand how it feels for a person with assets to live in a socialist/communist country.

Not so sure about any “breakdown” in charting relationships. Likely due to the following reasons:

(1) Investors are a bit wiser now…when the ZAR is stronger, it’s a perfect opportunity to buy offshore/rand-hedge investment. Even if one is making a foreign cash investment. How long will the ZAR remain at current strength? (Maybe just for a year or two, thereafter you lose this great buying opportunity).

(2) Remember, the recently announced (Feb Budget Speech) 5% increase in the ceiling for foreign “asset swap” capping for local funds? That may’ve been utilised to the full again.

(3) Worrying spate of news from S’African corporates facing headwinds…Steinhoff for one; EOH; M&R / Grp5…and corporate ethics issues (e.g. KPMG); plus high single-equity concentration-risk (e.g. Naspers)and while at that, we’re 0,5% of the global economy. Why NOT diversify more offshore?

(4) It’s not anti-patriotic to invest offshore (one’s forefathers won’t haunt you). It’s simply WISE from a sovereign risk (especially if one if not made feel welcome anymore in your country of birth, as a result of (i) political rhetoric, and (ii) through higher taxes to fund the inept.

(5) Foreign investment flows (keeping the ZAR high) ignores micro-politics (like the land issue) and instead focus towards regional/EM exposure, of which SA happens to be one. On the other hand, local investors are keenly aware of local politics….and many are old enough to know where the country has been, and where it is going.

(6) The ZAR is one of the worlds most volatile EM currencies. There are years when the ZAR has been the best improving EM-currency, and years when we’re the worst-performing EM-ccy. Even if the ZAR goes even stronger, say closer to R10,50/$ at year-end, the foreign buying opportunity is even more compelling. As when the ZAR retreats, if usually goes down violently. You WANT to have a Rand-hedge/offshore nest-egg when (not if) that time comes.

I better stop here, as my comment grew into a full article!! *lol*

my wife and I took money out about a month after Nenegate. She at 15.11 and me at 15.74. I now realise it was emotional/stupid.

but 2 interesting things:
it was good years for world markets since then and both of us are still about 30k to 70k up each (in Rand terms)at this very moment.
and, although I took R15k less over than my wife, my investment today (and throughout) is R40k more than hers (note we both invested in the same Cor global opportunities fund but 3 weeks apart).

Motto of the story? timing is a funny game, just like cricket 🙂

One item left out – fear.
Second item left out – lack of trust
Third item left out – a bird in the hand is with two in the push.
Fourth item left out – one can live with a little but cannot live with nothing.
Fifth item left out – our children’s future

South African’s need to move the focus away from the exchange rate . A difficult thing to do I know . This is especially true once you have done the trade . Once you at this point the mature investor only looks at the return in the currency they now in . eg What has the investment done in dollars , pounds etc .

On a lighter side don’t go to London on holiday and price your coffee in Rands , it’s just depressing !

At last!

I have to say it took a long time for South Africans to wise up and sell ZAR at the top and externalise. Always was done in panic.

Diversification was a dirty word and faux deals with asset swaps were recommended by local asset managers and subject to their inherent limitations.

Get your own money offshore and use offshore asset managers without a connection to SA – diversify!

End of comments.



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