Investing Internationally
Warwick Gauteng Regional Manager, Deon Myburgh, writes on why we believe you should invest internationally.
Why you should invest internationally
Warwick Wealth firmly believes that it is imperative that a well-diversified investment portfolio must have healthy offshore exposure. Indeed, all our house view models have a minimum allocation of 38% to offshore assets. Exposure to offshore assets can be via rand-denominated feeder funds, or through direct exposure to international markets and exchanges. There are a number of reasons for our view, and a few of the more important ones are highlighted below.
Diversification
Our local JSE makes up less than 1% of global investment opportunities. Our market is highly efficient, but it is very heavily weighted towards the mining and financial sectors. Several very important sectors are absent on the JSE, for example, the pharmaceutical sector, the alternative energy sector, the artificial intelligence sector, etc.
Quality
The business environment in South Africa is over-regulated and relatively uncompetitive due to restrictive policies and onerous requirements placed on the private sector by the government. This means that companies listed in South Africa must contend with a difficult environment when compared to our developed market peers. Companies listed in the US operate in a comparatively business friendly environment and also supply their products and services in jurisdictions where consumers have more purchasing and spending power compared to South Africa. The international companies we favour have extremely strong global income streams, for example Johnson and Johnson and Berkshire Hathaway.
Currency
The long-term trend of the rand versus the dollar is one of steady devaluation over time. While this trend is not directly linear, over time, the rand has devalued on average around 5% per year over the last 25 years. There is no indication of a reversal of this trend, thus, having a healthy exposure to offshore growth assets (global equities) ensures you are investing in quality global businesses and in hard currency.
Politics
The last factor to consider is politics. The political landscape in South Africa is extremely volatile. The official unemployment figures illustrates that around one third of the working age population is unemployed with around 60% of the youth being unemployed. This is not sustainable over the long term and the risk is that when desperation sets in, populist policies by governments tend to follow. This could make the business environment in South Africa even more difficult for the private sector to navigate.
Given all the above, we firmly believe in healthy exposure to large global blue-chip companies with diversified global income streams, strong balance sheets and a proven track record of growing earnings over time.
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