South African investors still look offshore
South African investors, particularly richer individuals, continue to look offshore for opportunities despite a strong rally in local markets following the formation of the Government of National Unity (GNU).
FNB Wealth & Investments CEO Bheki Mkhize told Daily Investor that this is because global markets still offer many more opportunities for diversification across sectors that cannot be accessed on the JSE.
South Africa’s financial markets have rallied strongly over the past three months, with the rand becoming one of the biggest gainers against the dollar this year.
Local government bonds have outperformed all emerging-market peers, returning more than 17%, and the JSE All Share has delivered a gain of more than 13%.
Despite this rally and continued optimism regarding the country’s future, local investors are still taking money offshore.
Mkhize said it was clear that this is not based on anti-South Africa bias or fear of another Ramaphoria period.
From engagements with their clients, it is much more of a portfolio diversification strategy, where individuals look to find assets that they cannot invest in locally.
“There are some sectors that we don’t have exposure to that will inherently lead people to want to go offshore to invest and get returns in those themes, whether it’s AI, Big Tech, healthcare, and renewables in some instances,” he said.
People think, based on past performance, that these investments will continue to grow faster than others that investors are limited to in South Africa.
And so, Mkhize said FNB had not flagged a shift from local investors allocating more of their cash to South Africa or returning capital from overseas markets.
Rather, the recent rally has largely been driven by local asset managers and retail investors pumping cash that was sitting on the sidelines into the stock market.
This cash was left in fixed-income investments or savings accounts as investors adopted a wait-and-see approach in the buildup to the national election at the end of May.
Mkhize said the local market is still relatively cheap from a valuation perspective and offers some good opportunities for investors.
However, many will still wait to see if the new government can drive structural changes that can unlock much faster economic growth.
Foreign investors, in particular, will want to see tangible evidence of improved economic performance before allocating capital to South Africa.
These investors have been net sellers of local equities to the tune of R95 billion in 2024 so far, indicating that they have not yet returned to the JSE.

Mkhize also noted that investor behaviour changes significantly depending on the value of the rand, and sometimes not in a good way.
When the rand strengthens, as it has done over the past few months, investors tend to convert the local currency into dollars or euros and take their money offshore.
However, there is also a noticeable shift when the rand weakens. Some would then expect investors to hold on to the local currency and only convert it when it strengthens again.
But, Mkhize said, when the rand weakens, people panic and then convert the local currency into dollars or euros out of fear it is collapsing or will continue its decline.
This can have poor financial results, as individuals take money offshore at the worst possible time and bring it back when it is not advantageous.
Mkhize also made it clear that not only the rich take their money offshore. Less wealthy South Africans do it differently.
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.
High-net-worth clients tend to convert their rands into foreign currencies and invest using those to nullify the effects of rand depreciation completely.
Lower-income clients tend to increase their offshore exposure through locally listed exchange-traded funds (ETFs) that track international indices or through exchange-traded notes (ETNs) that track the performance of global companies.
Mkhize also noted that many of the largest companies listed in South Africa generate a substantial portion of their revenue outside of the country, giving many local investors a hedge against rand weakness.
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