EXTRAORDINARY PROFITS FROM ORDINARY SHARES * WINNING STOCK MARKET STRATEGIES * INTERNATIONAL INVESTING FOR SOUTH AFRICANS
Looking beyond South Africa
International markets have been attracting South African Investors for decades. Many South Africans want to invest overseas, many already have and thousands add to their overseas investments every year.
International investing can broaden opportunity and diversification, but returns, correlations and exchange rates vary and losses remain possible.
Local concentration and global diversification
Problematically most South Africans have the vast majority of their assets in South Africa and they are therefore denominated in rands. South Africa represents a small share of global investment markets, so an exclusively local portfolio excludes many international opportunities.
A further problem with emerging markets is that although at times they can show very strong growth, they can display extreme volatility. Circumstances can change quite rapidly as emerging markets mature and become sophisticated but they can also, unfortunately, experience devastating declines.
Diversification can spread exposure across countries, but it does not guarantee protection against loss. Furthermore, you gain the opportunity to choose from a wider range of investments. Excellence and performance are not confined to a specific corner of the world. Superb managers work day and night wherever they may be and capitalize on every opportunity they find no matter where it is. If you search worldwide, you will find more growth investment opportunities than if you stick to only one country.
Exchange controls and the investment environment
Of course, there are detractors, such as governments with exchange controls that discourage or forbid citizens to invest overseas. This, in itself, is a warning and should convince you.
South African tax residents are generally taxed on worldwide income, subject to applicable exclusions and relief. As a country still striving to complete the democratization process, exchange controls have overstayed their welcome. Furthermore, how can we plausibly argue the viability of South Africa as an investment destination when we do not have the courage to completely scrap exchange controls.
Researching a wider investment universe
Investing overseas remains a complex matter. The investment universe is huge. There is a wide range of funds and listed companies. Opportunity ranges from stocks to bonds, hedge funds and thousands of derivative products.
Each investment opportunity needs to be studied to determine its place and appropriateness in terms of characteristics of risk and potential return.
Understanding international exchanges
Also, unlike South Africa, overseas countries have many different markets. The US, for example, has a number of stock exchanges that have different trading methods and services. The main US markets are the New York Stock Exchange (NYSE) and Nasdaq, historically an acronym for National Association of Securities Dealers Automated Quotations.
The Nasdaq is typically home to high-tech companies and is totally computerised. Trading takes place via computers without a trading floor, similar to the system now used by the JSE.
The NYSE combines electronic trading with a physical trading floor and designated market makers, and lists companies across many sectors.
Global integration and emerging trends
Notwithstanding the difficulty and trepidation of investing abroad, globalization increases daily. Foreign and local markets are increasingly integrated and investors who do not educate themselves and who are unfamiliar with international investments will find themselves at a growing competitive disadvantage.
When allocating investment capital, it is most important to stick to a trend against a back drop of emerging demographics. Studying these trends will immediately turn your focus on areas that are growing rapidly. The work from anywhere phenomenon, the increased competition for specialist staff, the increased stay at home emphasis, medical issues and an increased rate of obesity are just a few areas that are more significant now and must get more investment attention.
Companies beyond the JSE
If you restrict your investment to South Africa, you will miss out on investments like Apple, Microsoft, Alphabet (Google), Meta (Facebook) and Tesla. These companies illustrate the breadth of international markets; each investment still requires assessment of valuation, risks and future prospects.
Past gains do not guarantee future returns.
International investment opportunities require assessment of valuation, risks and future prospects, rather than reliance on past wealth creation.
Request a portfolio review
If you are not happy with your portfolio performance or would like a second opinion, please do not hesitate to contact Fenestra for a free review of your portfolio.
