The rand value that makes South Africans go berserk
South Africans go “berserk” when the rand hits R18/$, with many rushing to take money out of the country and invest in global assets in hard currency.
The head of stockbroking at Standard Bank, Ed Southey, revealed this when explaining just how difficult it is for asset managers to pick an entry point into an investment.
At the bank’s Democracy and Markets event, Southey said the investing world has become increasingly fast-paced, affording investors small windows of opportunity to acquire assets.
He explained that events such as South Africa’s election provide a window through which investors can achieve outsized returns.
For example, an active investor could capture significant value from the recent relief rally in local equities following the election results or benefit by betting against South African companies before the election.
Southey hopes this election will spark a significant and sustained period of appreciation in the value of South African assets.
Investors will still have to wait and see if the fundamentals improve in South Africa and if the new government fulfils its promises.
Southey warned that South African companies remain cheap for good reasons, with pockets of value apparent on the JSE.
If growth picks up to 3%, this entire landscape will change, and the recent rally will expand to companies outside JSE blue chips.
However, Southey said this window of opportunity could close very quickly, with capital flows shifting within minutes.
He pointed out the activity of investors on Standard Bank’s forex platform, Shyft, as an example of how quickly things can change.
This platform enables South Africans to convert their rands into hard foreign currency and invest in global companies.
“Every time the rand his R18 to the dollar, Shyft goes berserk, and money flows out of the country into hard foreign currency,” Southey said.
This subsequently weakens the rand to levels above R18/$, and the frenzy abates.
Southey explained that investing offshore in hard currency is most commonly done by wealthy South Africans who are still looking to take money out of the country.
Standard Bank’s high-net-worth asset manager, Melville Douglas, noted that its exposure to global assets has increased markedly in the past few years as rich South Africans move their wealth offshore.
Previously, its exposure would be 60-40 in favour of South African assets. In the past five years, this has flipped in favour of offshore assets.

However, it is not only rich South Africans taking their money offshore.
FNB Wealth and Investments CEO Bheki Mkhize told Daily Investor that many lower-income South Africans have also taken their wealth offshore, albeit in different ways than their wealthier counterparts.
“People want returns, and where those returns come from, they do not really mind,” he said.
Mkhize said that high-net-worth clients have driven the trend of South Africans taking their money offshore, but lower-income segments are also increasingly trying to increase their international exposure.
Both sets of clients want to increase their exposure to global investments, but they do so in different ways.
High-net-worth clients tend to convert their rands into foreign currencies and invest using those to completely nullify the effects of rand depreciation.
Mkhize said these clients tend to wait for periods of rand strength to convert to dollars, euros, or pounds and that there are noticeable spikes in demand for offshore products during these periods.
On the other hand, lower-income clients tend to increase their offshore exposure through locally-listed exchange-traded funds (ETFs) tracking international indices or through exchange-traded notes (ETNs) tracking the performance of global companies.
Mkhize explained that this does not mean people are not investing in South African companies. Demand for local assets, particularly fixed-income assets, is still strong.
Comments