South Africa: Review investments and seek international opportunities, investors warned

Gavin Smith

Doing nothing is now not an option for those who are serious about creating, growing and safeguarding their wealth.

This is the clear warning from Gavin Smith, Head of Africa at deVere Acuma, part of one of the world’s largest independent financial advisory organisations, as South Africa faces many serious economic and political challenges.

He comments: “A tougher global market and legacy issues from the previous government, the increasing pressure of constant fuel hikes and an incredibly volatile rand, drove the country into a technical recession in the second quarter of the year.

“These severe, and somewhat unexpected, headwinds should be a wake-up call for investors.

“Doing nothing is now not an option for those who are serious about creating, growing and safeguarding their wealth.”

Mr Smith continues: “Now is the time for investors to ensure that their portfolios are properly diversified – and this includes across asset classes, sectors, as well as geographical regions.

“During periods of volatility and upheaval, diversification is the best weapon to mitigate risks and the best way to take advantage of the important opportunities that present themselves – which they inevitably do.”

The slew of economic data that has come out of the country recently is one of the reasons Mr Smith believes investors should be casting their eyes internationally.

As fuel prices escalate – giving rise to transport costs eating away at disposable household income – putting more pressure on consumers, he says trying to stimulate growth will remain a challenge in the near future.

However, Smith also warns that for many investors the idea of simply limiting the impact of fuel hikes to household consumption won’t be enough to protect their wealth.

“One should consider how the rise in these costs affects the supply chain of many businesses – and it’s these things that should give investors pause. A struggling economy, with consumers under pressure and a high unemployment rate leaves very little space for political stability,” he noted.

This was highlighted in April by the World Bank when it released a report on the South African economy in which it highlights the rand’s volatility – which continues to drive the price of fuel and imports higher.

The report raised concerns around the “divergence in productivity between South Africa and the world” which it states, “puts the rand on a depreciating trajectory in real terms, making imports more expensive for both consumers and firms”.

Mr Smith says that this report and many others paint a telling picture in terms of what investors need to do to preserve and protect their wealth.

“South African investors should be looking at international options because of the fluctuating rand as well as the challenging political and economic environment.

“While global markets are in a precarious place, with the exception of the U.S., the decision should be based primarily on what’s happening in South Africa,” he explains.

Corruption – perceived or real – is a major deterrent for investors. For instance, the scandal regarding the mismanagement of VBS Mutual Bank, and the failure of corporate giants such as Steinhoff make investors question regulatory checks and balances and whether their money would be secure in South Africa.

In an economy that’s stuck in a rut, highly publicised events such as these cause people to think corruption is worse than it is.

Naturally, this will lead to foreign investors to rather look for opportunities outside South Africa, Smith points out.

Mr Smith believes that these indicators make a solid case for international diversification, and investors shouldn’t take a wait-and-see approach when it comes to acting because the future is uncertain.

He observes: “There are many legitimate, established financial solutions that can help ensure that portfolios are adequately diversified.

“But delaying reviewing your investments and not considering international opportunities because you’re waiting for the currency to recover is like trying to time the market.

“If the political and economic conditions happening now are having a real-time effect on your investments, then you should diversify now.”

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