Investing offshore is about more than the rand

At the start of March this year, the rand was trading at under R12.00 to the dollar. Cyril Ramaphosa had taken over as president, world economic growth was positive, and sentiment towards emerging markets in general was good.

The local currency was benefiting from all of this, having strengthened all the way from around R14.50 in November last year. That was the month before the ANC conference, when uncertainty around our political and economic future was extremely high.

With Ramaphosa having emerged as the new ANC leader, and subsequently the president of the country, it seemed that South Africa was being given a second chance. The stronger currency matched a growing confidence from businesses and consumers, and Ramaphosa was starting to clean up the mess in state institutions and state-owned enterprises.

However, what has happened since has reminded investors just how quickly things can change. The Brent crude oil price climbed to over $70 a barrel, the dollar strengthened, and fears about a potential trade war scared investors away from emerging markets.

In the face of all this, the rand couldn’t hold on to its gains. From around R12.50 to the dollar at the start of May, it has retreated all the way to its current levels of around R13.80.

This isn’t a reflection on South Africa specifically. With global risk levels having increased, investors have decided that emerging markets are no longer quite so attractive, and have gone back to where they feel safer.

Although this volatility in the rand has certainly left a lot of investors confused, it should also serve as an important lesson: trying to predict where the rand is going next is just about impossible. Even the professionals struggle, because there are just too many things that can have impact.

Basing an investment strategy on the short-term movements of the rand is, therefore, not a good idea. Trying to time its ups and downs in deciding when to take money offshore or bring it back is a bit like playing roulette.

Sygnia Portfolio Manager, Rian Brand believes it’s more important to have a solid, long-term offshore strategy in place to help you meet your investment goals. “Investing internationally should be about diversification and gaining access to companies and industries that you can’t find on the JSE, not simply about trying to benefit from currency movements”, says Brand.

Investing in product that tracks a broad international index like the MSCI World Index or the MSCI USA gives you access to some of the best companies in the world, at very low cost. If you add to your investment every month, you will also smooth out the volatility in both stock markets and the rand.

“It is often difficult to invest in times of uncertainty, when things are changing so quickly. But if you have a solid long-term strategy, using well-diversified, low-cost products, you can have the confidence to stay invested and reap the benefits in the long term”, adds Brand.