South African investors looking offshore

South African investors are increasing their offshore exposure to reduce their exposure to the local economy and access sectors and companies unavailable on the Johannesburg Stock Exchange (JSE).

This is feedback from Bheki Mkhize, CEO of FNB Wealth and Investment Solutions, who spoke to Daily Investor about the investment sector in South Africa.

Mkhize noted the increasing popularity of offshore investments in South Africa, with demand often exceeding that of local investment products.

This trend is not unique to FNB’s clients. South African investors generally look to invest their money outside South Africa.

In its Investment Management Outlook 2023, Deloitte noted that the share of assets under management (AUM) allocated to offshore investments increased from 6% in 2012 to 15% in 2022.

Mkhize also pointed out the increasing number of local asset managers partnering with global counterparts to increase their access to foreign equities and leverage their expertise.

Over the last few years, Stanlib has partnered with JP Morgan Asset Management, and Goldman Sachs has expanded its local offering to include wealth management.

Last month, Deutsche Bank announced plans to expand its South African operations with a wealth management offering.

Mkhize said that these international players are coming to South Africa to leverage their existing expertise to invest local money in foreign equities.

Why South Africans are looking offshore

South African investors take their money offshore to diversify their risk and access companies and sectors only available outside the country.

The local economy has performed poorly compared to its international counterparts. South Africa’s GDP growth rate has not breached 5% since 2007.

This has and will continue to inhibit the performance of equities on the JSE.

Furthermore, the consistent depreciation of the rand versus the dollar has made it challenging to earn a real return in dollar terms by investing in South African companies.

Investing offshore allows South Africans to spread their risk across different countries and economies. This reduces the impact of economic or political events in South Africa on investor returns.

However, there is an overlooked reason why South Africans want to invest offshore: There are more investment opportunities outside of the country.

The South African market is tiny compared to global equity markets, with limited options for investors looking for diversified exposure across sectors.

In particular, investment opportunities in technology, biotech, pharmaceuticals, and the climate are unavailable on the JSE.

Mkhize said he sees the greater demand from South African investors for offshore solutions increasing in the future.

Asset managers will have to meet this demand with increased offshore offerings. However, these offerings will have to be differentiated to avoid saturation.