“… your money deserves to go places,” Ninety One (dual-listed on both the South African and London Stock Exchanges).
Many people who choose to stay in a country feel a sense of pride and patriotism for their local residence. Whether it’s a native birth-right or an adopted sense of nationalism, buying, supporting and investing local is an important priority.
So much so that the thought of moving money offshore can be off-putting.
But when it comes to sound investment strategy, an offshore investment will give you access to opportunities across different countries, industries, companies and currencies, exposing your portfolio to more possibilities while diversifying your risk. As Ninety One says on their website: you enjoy life in the country you love, whilst your money discovers a world of investment opportunity.
Those opportunities are dynamic and ever-changing. As markets rise and fall, currency depreciation becomes either a strategic liability to any investment portfolios that are heavily weighted in cash, or creates opportunities for portfolios exposed to the export market.
Currency depreciation is a fall in the value of a currency in a floating exchange rate system. Economic fundamentals, interest rate differentials, political instability, or risk aversion can cause currency depreciation. Orderly currency depreciation can increase a country’s export activity as its products and services become cheaper to buy. (Investopedia.com)
This phenomenon is not unique to any one country and can hit any economy at any time. This is why investing offshore may enhance your returns and reduce risk by diversifying your exposure to a single currency or country.
Whilst it can help to form a prudent part of your portfolio alongside local investments, remember that the level of exposure must be linked to your personal financial plan.
It’s not about saying that one economy is better than another; it’s about recognising that by investing in local property, a local business or the local stock market alone, you are highly vulnerable to local conditions.
Offshore investing can reduce the risk of capital loss by spreading your investments across markets and currencies. It will also minimise the impact of currency depreciation or political and market events on your portfolio. Local fiscal and monetary policies may deteriorate along with the likes of state-owned enterprises and other government-led initiatives.
That being said – there are three things to consider when evaluating the benefits of offshore investing: inflation, interest rates and costs.
For all three, we should have a conversation about your personal setup to see how they could affect your decision to explore offshore.
Typically, you can invest directly, or you can look at an asset swap. According to Investopedia, an asset swap is used to transform cash flow characteristics to hedge risks from one financial instrument with undesirable cash flow characteristics into another with favourable cash flow.
Before you make any decisions, make sure we have checked in on your decision and that it aligns with your personal financial plan.