Rich South Africans taking their money offshore

Wealthy South Africans are relatively cushioned from the country’s poor economic performance, enabling them to continue investing despite a rising cost of living. 

Furthermore, many of these South Africans are taking their money out of the country to protect their investments from a volatile and weakening rand. 

While the local currency strengthened following the formation of the Government of National Unity (GNU), it has weakened at around 5% a year over the past decade. 

Despite the recent decline in South African households’ net wealth, as shown by the latest South African Reserve Bank Bulletin, Standard Bank’s data reveals that a subset of high-income consumers continue to save and invest. 

These clients – generally earning over R1 million annually – have been cushioned by their prior savings and investment habits.

Chiko Manokore, Standard Bank’s head of personal and private banking, said the bank is now targeting clients with monthly incomes exceeding R360,000 annually to offer tailored financial guidance.

This is part of Standard Bank’s broader push into insurance and asset management, which began in 2022 when it reincorporated Liberty and Stanlib into the financial services group. 

The bank sees this as a way to cross-sell its investment products to its existing banking clients and deepen its relationship with private banking customers. 

“What we see with this resilient cohort is that through financial advice, they were able to take advantage of opportunities that presented themselves in equity, money markets and other savings and investment categories,” said Manokore.

These clients have invested in unit trusts, money market funds, and property, which has helped them maximise returns in the current high-interest-rate environment. 

Furthermore, according to Standard Bank data, multi-asset funds and offshore investments have gained popularity. These allow individuals to maximise returns, reduce volatility, and hedge against currency fluctuations.

This trend is also evident among high-income clients across the 14 Southern, Western, and Eastern African countries where Standard Bank operates as a retail bank outside of South Africa. 

Offshore investments have become increasingly popular among these clients in recent decades, with clients increasingly engaging with the bank’s offshore products, such as savings and investment accounts in foreign currencies. 

It is not only the rich

Standard Bank is not the only financial institution to notice this trend of richer South Africans seeking investment opportunities outside the country. 

Earlier this year, FNB Wealth and Investments CEO Bheki Mkhize told Daily Investor that the bank has experienced increased demand for offshore investment products. 

Mkhize also said that protection from a weakening currency is not the only reason South Africans are taking money out of the country. 

“People want returns, and where those returns come from, they do not really mind,” he said. 

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

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

Another major factor is there are simply more investment opportunities outside of the country and in sectors that investors cannot get access to on the JSE. 

In particular, the JSE does not offer investment opportunities in technology, biotech, pharmaceuticals, and climate.

The combination of these factors has driven the increasing popularity of offshore investments in South Africa, with demand often exceeding that of local investment products.

Mkhize observed that while high-net-worth individuals have been leading the trend of South Africans moving their funds offshore, lower-income segments have a growing interest in increasing their international investments.

Both groups are seeking greater global investment opportunities, but they employ different strategies to achieve this.

Affluent clients often choose to convert their rands into foreign currencies, investing these funds to mitigate the impact of the rand’s depreciation.

Mkhize highlighted that these clients tend to wait for moments when the rand is stronger before converting it into dollars, euros, or pounds, which leads to noticeable surges in demand for offshore investment products during these times.

In contrast, clients with lower incomes generally increase their international exposure by investing in locally-listed exchange-traded funds (ETFs) that track global indices or exchange-traded notes (ETNs) that follow the performance of international companies.

Mkhize clarified that this shift towards global investments doesn’t mean people are abandoning South African companies. There remains a strong demand for local assets, particularly in the fixed-income sector.

“There are still some very solid companies in South Africa with excellent management teams delivering strong results,” he said. 

However, these successes are more isolated, as the broader market requires much stronger economic growth to see significant improvement.