Markets set the tone for a ginger recovery: world-class opportunities on your doorstep

Domestic securities and why they are a great investment and savings vehicle

According to a recent retail investor sentiment report by finder.com, nearly a quarter (24%) of South African adults believe stocks will be the best performing investment in 2022. This is well above the global average of 17% and is surprising given the recent increases in interest rates by the South African Reserve Bank’s (SARB’s) Monetary Policy Committee, as share prices don’t perform well when interest rates increase.

However, according to a recent Biznews article, South African investors are likely looking to hedge against price hikes – with inflation now at the top end of SARB’s target range. A further consideration when investing in equities during periods of high interest rates is gearing. Companies with high levels of gearing are more susceptible to increasing interest rates and this will reflect negatively on their future profitability, thus impacting their share prices. Entities such as banks tend to benefit from increasing interest rates, so ensuring that your portfolio has exposure to stocks in the banking sector will contribute to robust returns when interest rates are high.

Whether current inflation is transitory or structural in nature remains uncertain. Nevertheless, the key to creating a lasting legacy is to ensure that you have exposure to those asset types that will provide positive real returns in the long run – like the domestic equity market.

At PSG, we advocate a long-term horizon when considering investing in South African equities, rather than just focusing on the short term. Remember that short-term fluctuations are an inevitable part of investing in equities. To ensure your share portfolio is well constructed, contact a financial adviser who can assist you in building a portfolio designed to maximise returns over the long term whilst reducing investment risk through diversification by investing across various sectors.

Unpacking South African exchange controls – do relaxed exchange controls present opportunities for investors?

We have focused part of this article on the benefits of investing in South African equities, but a well-diversified portfolio requires a certain amount of offshore exposure. Exchange controls limit the amount that South Africans can invest offshore in their own name. The single discretionary allowance of R1 million per annum is the most common way South Africans externalise local money offshore. If an investor has additional capital available, they can submit an application to the South African Revenue Service (SARS) to invest an additional R10 million offshore as part of their annual foreign investment allowance. Certain investors (such as companies) can invest offshore by utilising the asset transfer capacity underwritten by PSG Life Ltd (FSP 22557). Given the above limits, a relaxation of exchange controls will present increased opportunities for South African investors to invest offshore. Investing offshore is an essential part of building a lasting legacy, allowing South Africans to hedge against the rands’ fluctuations.

Creating a balanced portfolio with exposure to local as well as offshore markets offers many opportunities for investors. Whilst this may seem daunting, a qualified financial adviser can guide you on how much you should allocate to offshore investments and how to structure your portfolio to ensure this component of your portfolio contributes meaningfully to your building a lasting legacy.