South African's urged to invest offshore

Chief Reporter

EXPECTATIONS of a weakening rand have prompted Old Mutual Asset Managers (Omam) to buy foreign assets while they are cheap — and it has advised investors to do the same.

Investors should switch now while the rand was still relatively strong, SA’s largest fund manager said yesterday.

“Both from a currency point of view and to diversify investment portfolios, it makes sense to consider investing offshore now,” said Omam senior portfolio manager Denzil Burger.

Omam’s advice comes as other professional investors are bulking up on foreign assets in expectation that the rand is at the top of its cycle.

Recent figures from the Association of Collective Investments show there is a greater amount of money being put into its global funds, while retirement fund statistics tell the same story.

Rough estimates suggest that South Africans have about R150bn of their R1-trillion savings invested offshore, asset managers say.

Last month’s surprise 50-basis-point interest rate cut has shown the Reserve Bank wants the rand to weaken to limit the crunch on the manufacturing and mining sectors, analysts say.

But since the cut in the repo rate to 7%, the rand has remained surprisingly strong, at about R6,13 to the dollar.

However, the long-term view is that once deals such as Barclays’ planned takeover of Absa — seen as supporting the currency — are done, the rand could weaken.

Burger said the case for buying offshore was made more compelling by the possibility of another rate cut before the end of the year.

“If the rand continues to stay strong, and inflation remains fairly constant, then there is definitely scope for another rate cut later this year. Should this happen, we’re likely to see the rand fall in the longer term,” he said.

Omam, SA’s largest private sector asset manager, with about R290bn under management, has been buying offshore. “We have been pushing up the offshore component of our portfolio, and have been recommending to our clients that they do so,” Burger said.

The law prevents people from putting more than 15% of a retirement fund into foreign assets, and Omam said it had been slowly pushing up its offshore exposure to about that 15% level.

This appears to be a trend. Sanlam Investment Management chief investment officer George Howard said yesterday there was not much chance the rand would strengthen.

“So we’re certainly (buying more offshore assets now) and doing that for our clients.”

Association of Collective Investments CEO Di Turpin said last month that a return to favour of global unit trust funds “could be an early indication that investors are at long last using the rand’s strength to diversify offshore”.

Burger advised investors to look further afield than the US. “The Far East markets, such as Japan, could be a good bet.”

Omam said that its calls for diversification did not suggest that the local equity market was losing its sparkle, after performing well during last year.

“It’s rather just a call for diversification,” Burger said.