The past few months has seen a rapid shift in global confidence away from emerging markets to developed economies. According to STANLIB head of offshore investments Anthony Katakuzinos, the shift has been so precipitous that nobody could have foreseen it.
“This fact reinforces our view that investors have to diversify across different asset classes and geographies. There are two choices to be made here – the decision to go offshore, and then what asset classes to select,” he says.
STANLIB reckons the average investor should prudently have 20-30 percent of their total assets offshore, within a wider range of 15-40 percent. Katakuzinos says the rationale for investing offshore should not require any further explanation than the fact that South Africa accounts for barely two percent of the global economy, we’re an emerging market and highly concentrated on commodities.
“Offshore gives you exposure to a lot of key industries that simply do not exist on the South African markets, and at valuations that compare well with local listed companies. Furthermore, offshore gives you exposure to other emerging markets, the BRIC (Brazil, Russia, India and China) high-growth bloc, as well as the full array of developed nations.
“The nature of diversification is that countries all perform differently, so it stabilizes a portfolio.”
Recognising the bad experiences that many investors have had offshore, Katakuzinos says people have to put that behind them, just as they have to put any sort of poor investment behind them or miss out on future opportunities.
“Back in 1998/99 at the height of the pre-Tech Bubble bull market offshore valuations were 35-40 times, whereas today the MSCI Worldwide index is 15 times, and on a forward earnings only 12,5 times. In addition, the rand is extremely strong compared to a decade ago – so the circumstances are avstly different.
“Now is the opportune time for South Africans to be looking to take money offshore.” However, he cautions against putting money into other emerging markets, saying they should rather look at a ‘global mandate’.
By this he means investing in an actively managed global fund wherein the fund manager has the discretion to switch investments between emerging and developed markets wherever the value appears.
Given that retail investors remain highly cautious and conservative given recent market volatility, property funds are currently offering superior returns to vanilla cash investments, he says.
“They’re showing reasonable yields of 5-7 percent, compared to less than one percent (if that) on the money market,” adds Katakuzinos.