Don’t take everything offshore just because you can

Consider the fundamental value in South African assets.

Patrick Cairns 26 July 2017

Picture: Simon Dawson/Bloomberg

For many local investors, it’s hard to feel confident about putting money into South African assets. The risks and uncertainties seem very high, particularly when it comes to cash and government bonds.

At the start of 1994, one US dollar bought R3.40. The local currency has since depreciated by close to 75%, and people are therefore worried about losing purchasing power if they invest in South African cash.

The uncertainties about the country’s political and fiscal stability also make many investors wary of local government bonds. There is a good chance that South Africa’s sovereign credit rating will be downgraded to sub-investment grade before the end of this year, and people are worried about whether that will cause an exodus of foreign investors and how that would impact the bond market.

However, a number of asset managers argue that it would be wrong to simply ignore South African assets. One has to be able to look past the short-term noise to recognise the fundamentals.