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Send  Print  Share  RSS  Twitter  28 Oct 2009

Relaxation of fx controls favours offshore invstnt

Johannesburg, Oct 28 (I-Net Bridge) - The move by new Finance Minister Pravin Gordhan to relax exchange controls and raise the offshore limit for individuals to R4-m provides a good opportunity for investors wanting to take advantage of current Rand strength to diversify their investments offshore.
Johann van Zyl, Head of Investments at BoE Private Clients, says the relative strength of the local currency presents the perfect window of opportunity for investors to reassess their portfolios and reposition relative offshore exposures.
He says the move is to be welcomed as it is important to promote a free flow of assets in order to hedge investments in a structured and balanced way. "The Rand has been amongst the most liquid global emerging market currencies and one of the world`s most volatile. In the year until the 23rd of October 2008 low, the Rand weakened by 34% against the comparative basket of
currencies (excluding Zimbabwe).
"Since then it has strengthened by 39%. While it is still well below the January 2008 level, global conditions for a small open emerging market country like South Africa, are less friendly," he says.
The consensus view at BoE Private Clients is that current Rand strength is not sustainable. According to Van Zyl, the Rand - like other emerging market currencies - had benefited from decreased risk aversion but could be subject to increased risk aversion if faith in the economic recovery wanes.
He also notes that the country increasingly requires additional foreign capital: "South Africa is likely to run a twin deficit as tax receipts are rapidly falling behind expenditure. SA is capital hungry to fund the ambitious infrastructure project pipeline."
Van Zyl says the big question for virtually every high net worth (HNW) individual is how much offshore exposure should be in their overall portfolios.
"Determining an appropriate offshore allocation, how to invest and what to invest in, is crucial advice that investors seek.
"There is no silver bullet answer due to the large number of varying factors that need to be taken into consideration. However, a sound methodology that firstly looks at individual circumstances and thereafter at sound basic investment principles, is recommended.
"As a rule of thumb, the general suggested range starts at 20% offshore exposure but this will change - mostly up rather than down in line with factors unique to each client."
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