How South Africans can protect their wealth from a weak rand and stagnant economy

To protect their wealth from a weak rand and a floundering economy, South Africans should look to invest the majority of their money offshore, in rand-hedge stocks, local bonds, or high-quality businesses in South Africa. 

South Africa faces many problems, including poor economic growth, an unstable political environment, high crime rates, and collapsing infrastructure.

Some skilled South Africans move to countries like Australia, the UK, Canada, and the United States to live in a safer and more stable environment.

However, many people continue to enjoy the country’s great weather, food, family, and friends and need to protect their wealth from South Africa’s poor economy and, specifically, its weakening rand. 

Daily Investor reached out to investment specialists to ask how they suggest South Africans invest their money to protect their wealth. 

Head of investment research at FNB Wealth and Investments, Chantal Marx, said over the long term, investors should look to equities for the best results as cash will not beat inflation over a prolonged period. 

To protect against rand depreciation, investors should diversify across geographies through rand-hedge stocks such as Richemont and AB InBev.

She also suggested investing in ETFs that provide exposure to offshore companies or directly in offshore assets in foreign currency. 

Marx said there is still scope to invest in South African assets as they are undervalued, meaning you can get very good returns if you are willing to hold those assets for a long time. 

She said many high-quality companies continue to deliver good growth and high cash flows in a challenging environment and are looking to diversify their own exposure. 

In the fixed-income market, South African bond yields are still attractive on a relative basis and are probably a little too cheap compared to the country’s emerging market peers. 

This means that the downside is relatively limited, but the after-tax return comfortably outpaces inflation.

Marx said it is vital to maintain a longer-term view when investing, and wealth preservation must also be viewed in the context of where you live and what your goals are. 

For example, if you are saving for retirement in South Africa, you aim to outpace local inflation in rand terms. This means you must be less worried about rand depreciation and more focused on your returns in rands. 

The tepid local economic growth will be a concern, but remaining well diversified and focusing your equity investments on high-quality companies regardless of the external environment should stand you in good stead.

Country head at Schroders, Kondi Nkosi, said South Africans should invest the majority, if not all, of their money offshore to preserve their wealth over the long term. 

He said that if you only invest in South Africa, you are missing out on 99% of global equity opportunities, as the local stock market makes up a mere 1% of the global market. 

The local exchange is also highly concentrated, with several large companies and sectors dominating returns. Investing some of your assets in a global fund could protect your savings from being less exposed to concentration risk.

Furthermore, investing offshore will protect South Africans from the depreciation of the rand, which has a history of volatility and weakness versus the dollar. 

Economic challenges and an uncertain political situation will exacerbate this, Nkosi said.