Let’s Set Sail: Considering Offshore Investing

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Each analyst and investment pundit will have his or her own view on offshore investing and whether it should be considered in one’s overall portfolio.

Markets abroad have been under a lot of strain of late and if one has to go back to a time when consistent growth or positive results were being achieved then that would be as far back as 2001/2002.

Since then, offshore stocks, in general, have been slow on growth and have offered far less value than those offered in emerging developing markets (i.e. Brazil, India, China, Russia and South Africa).

If one considers all this, then the obvious question is: “should I consider investing offshore?”

The simple answer to that would be yes and here are some reasons why you should:

  • Diversifying through offshore investments provides some defense against volatile currency fluctuations and political risk.
  • Quality shares are available in developed markets at attractive valuations – many have significant exposure to emerging markets.
  • Relaxation of exchange controls now provides more opportunities for investing offshore.
  • By diversifying your investment portfolio, you ensure that you do not put all your eggs in one basket so that when one asset class is not doing well, you have another asset class doing its best for you. This is also an opportunity to be exposed to investments that are otherwise limited in South Africa.

Most importantly, when people think of the term “offshore”, they always immediately think of the developed Western economies. Which begs the questions: “Do emerging markets (other than ours) offer growth opportunities?”

It’s the rapid industrialization of the emerging economies of Africa, South America and Asia that are offering the most interesting opportunities.

Emerging markets are typically under-developed countries that have growth potential to develop into first world countries. Good examples are China, Brazil and Mexico.

In Africa, the biggest opportunity is Nigeria although it will be many years before this nation becomes a first world country.

Once you’ve decided to invest offshore, you’ll need to ask: “What kind of tax implications are involved?”

Tax is a key factor when considering investing offshore. A dual listed financial institution is well positioned to provide the expertise to deal with the different taxations of various countries.

Differences in income tax, capital gains tax and estate duty as well as exchange control regulations of the various countries need to be taken into account.

With a dual listed financial institution such as STANLIB, Allan Gray, Investec, etc. You have greater access to the right of recourse and easy and free information to efficiently deal with the different countries’ tax laws and requirements.

In conclusion – investing offshore, in one way or another, forms a very important part of one’s overall investment portfolio and if careful preparation and planning is done when considering this option, then the benefits will soon become apparent.

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