Is now the time to invest offshore?

By: Fränzo Friedrich, Head of Marketing at Momentum Investments Group

One of the most common questions from clients is: “When is the best time to invest offshore?” With the rand strengthening over the last few weeks, driven by optimism over the government of national unity (GNU), that question will probably change to: “Should I use this opportunity to invest offshore?”

The rand had a rollercoaster ride. First, it strengthened to below R18 to the dollar on lifted sentiment with the re- election of Cyril Ramaphosa as South Africa’s president and the prospect of a new “market-friendly” government. It then weakened again when it seemed that the DA and ANC couldn’t reach a deal, but strengthened once more with the appointment of Ramaphosa’s cabinet.

These are, however, short-term sentiments and the market will wait for the signs from the new cabinet to assess whether this “market-friendly” government will take practical shape and start turning the economy around.

Considering the current exchange rate, some may argue that now is a favourable time to invest offshore. However, it’s crucial to recognise that attempting to time currency movements perfectly is challenging and may not always align with broader investment goals.

Do your needs include offshore exposure?

There will be periods where the currency is undervalued and likewise periods where it is overvalued. Waiting for the best time to invest offshore is sometimes just a different way of saying that you are trying to time the currency.

To manage currency risks effectively, investment platforms and authorised forex dealers offer various tools. For instance, the Momentum Wealth International platform allows investors to phase in their investments over time, thereby reducing exposure to market volatility. Forex providers also offer tools such as forward contracts, which lock in exchange rates for future transactions.

The exchange rate is just one of the considerations to look at when investing offshore but it should never be the sole reason to invest offshore. Things like where the investment will be held, what type of product or structure will be used and how this will influence the client’s tax situation both during their life and at death are far better elements to spend time on getting right. Those are typically the elements advisers and their clients should focus on – those that are in their control and not the currency nor the market.

Clients would be far better off articulating their needs and objectives to a qualified financial adviser and putting the right asset allocation in place to meet those needs. Where that need includes offshore exposure, the focus should be on the most feasible way to implement the plan given the client’s circumstances.

Reasons to invest offshore

In general, investors should invest offshore as a means of diversification: international markets offer a much larger opportunity set and exposure to asset classes, industries, companies, and geographies that are less accessible in the local equity market.

This can lead to a better-diversified investment portfolio, leading to a smoother overall return profile. Investing offshore is also a good idea to maintain your offshore currency spending power. If you are planning to live abroad for a while or permanently, or for your children to study there, it might be sensible to have your money there already.

How to invest offshore

You can invest offshore by using either of our investment platforms: Momentum Wealth locally, or directly offshore through Momentum Wealth International by using your yearly foreign currency allowance. With Momentum Wealth locally, you can invest by investing rands into:

• Rand-denominated international funds
• Funds denominated in a foreign currency (when making use of an endowment or a retirement product).

Ultimately, the decision to invest offshore should be based on a comprehensive assessment of individual financial objectives and risk tolerance. It’s advisable for investors to consult with qualified financial advisers who can provide personalised guidance aligned with their specific circumstances.

For more information on offshore investing solutions, visit our dedicated page on momentum.co.za or explore our offerings at Momentum Wealth International here.