Finding a silver lining in offshore investments during unprecedented times

Finding a silver lining in offshore investments during unprecedented times

There isn’t a better time to equip offshore investors with the best product options available for their needs.

Following President Cyril Ramaphosa’s announcement on the further opening of the South African economy, more people are looking for new investment opportunities. In 2020, South Africa’s share in the global gross domestic product (GDP) adjusted for Purchasing Power Parity amounted to approximately 1%1. This is highly influenced by the extreme concentration of the country’s ownership and control. A relatively small number of firms are dominating the economic sector. However, there are options available for investors who wish to diversify their wealth, beyond the South African borders.

Foreign exchange, also known as FX or Forex, is the conversion, or exchange, of one currency into another through an authorised dealer. Offshore investors trade in foreign currency to diversify their portfolio against the Rand. Diversification of the South African rand is important for individuals who want to be exposed to wider investment opportunities, including those that are not listed on the Johannesburg Stock Exchange (JSE).

Diversification

Other ways to diversify an offshore investment portfolio, beyond currency, is through investing across various geographical investment funds, where clients have the freedom to invest in developed markets such as those in parts of Europe and the United States as well as investing in emerging markets outside of SA. Further diversification can also be obtained through the different investment asset classes like shares, bonds, property or even cash and investment themes, such as Megatrends and Disruption portfolios. Under unprecedented times, such as the recent Russia and Ukraine wars, the importance of proper portfolio diversification has become even more significant to secure investors’ wealth under unforeseen circumstances.

Offshore investments allowances

The aftermath of the pandemic left a negative effect on the global economic growth as a decrease from 5.5 per cent in 2021 to 4.1 per cent in 2022 and 3.2 per cent in 2023 is expected.2 South Africa experienced a slight decrease in inflation in January from 5,9% to 5,7%. This means that there is a growing need for South Africans to pursue offshore trading. To gain access to offshore investing, investors can utilise foreign allowances such as the Single discretionary allowance (SDA), where South African offshore investors over the age of 18 years are entitled to an SDA of up to R1 million per calendar year. The allowance can be used for any legitimate purpose, at the investor’s discretion. Other allowances include the Foreign Investment Allowance (FIA), where investors can receive an additional R10 million per calendar year, provided they are a taxpayer in good standing and have applied for the required tax clearance certificate successfully. The amount can be used to purchase property in foreign countries, invest amounts exceeding R1 million, and for transfers for other purposes where you may have already exceeded your R1 million SDA.

The tax clearance application process takes approximately 21 business days to finalise, and all supporting documentation must be provided along with your application.

Structuring your investments

The importance of product choice is often overlooked by offshore investors. The purpose of an investment product is to define the accessibility to and tax implications on the investors’ investment capital. Offshore investors can structure their offshore investments using various products such as direct investment into a Unit Trust, Stockbroking portfolio or Structured Product, or via an offshore Life Wrapper, like an offshore Endowment or offshore Sinking Fund, through which one can also access offshore Unit Trusts, Stockbroking portfolios and Structured Products. A Life Wrapper provides investors with a fixed tax rate within the product on the growth and proceeds generated. Through GraySwan, offshore investors gain access to international investment opportunities, tailored to their specific needs.

Types of Offshore Investments

Examples of offshore investment products include:

  • Offshore unit trusts and ETFs,

This product is similar to a local unit trust, where investors pool their funds together and purchase units in a portfolio consisting of a single or various underlying asset classes. They can either be actively or passively managed.

  • Offshore share portfolios

An offshore share portfolio works the same as a local share portfolio but instead of only having access to shares listed on the JSE, investors now have access to the full spectrum of globally listed companies.

  • Structured products

These are investment product innovations that have gained increased traction over the last few years as a supplement to traditional unit trusts, ETF and share portfolios. They are a pre-packaged, fixed-term investment that offers investors easy access to equity markets, but with the added benefit of a pre-defined and pre-packaged risk and return profile.

  • Offshore exchange-traded notes

Exchange-Traded Notes (“ETNs’) are exchange-traded debt instruments. The investor lends money to the issuer of the ETN (usually a bank) and then receives a return based on the movements in a specific benchmark. ETNs are also bought and sold via a stock exchange like a share but unlike ETFs. They do not provide investors ownership of the securities in the index they track, ETN’s merely provide the return that the index produces. That is why the price of the ETN must track the index closely to mitigate the possibility of tracking errors. ETNs are normally accessed via a stockbroker.

South Africans often shy away from exploring offshore investments due to the lack of knowledge available, however, offshore investing is a simple and convenient method of growing sustainable wealth. Any South African that is over the age of 18 years and South African companies (excluding Trusts and Close Corporations) may transfer money offshore via Foreign Exchange.

Through expert and industry experience offshore investors should be assisted with constructing an underlying investment that is suited to their personal investment goals and risk profile. It is the freedom to grow your wealth. Investors are also offered a tailor-made offshore investment portfolio suited to the client’s investment needs, time horizon and individual risk profile.

For more expert advice on finding your financial freedom through offshore investments, we encourage you to engage with our team of experts in structuring your offshore investment.

  1. https://www.statista.com/statistics/578862/south-africa-share-in-global-gdp-adjusted-for-ppp/#:~:text=In%202020%2C%20South%20Africa’s%20share,amounted%20to%20approximately%200.6%20percent.
  2. https://www.worldbank.org/en/news/press-release/2022/01/11/global-recovery-economics-debt-commodity-inequality#:~:text=Global%20growth%20is%20expected%20to,is%20unwound%20across%20the%20world.

About GraySwan 

GraySwan is an award-winning independent investment advisory and wealth management firm, that serves investment advice through a global megatrend lens to institutional and corporate investors, financial planning and wealth management solutions to personal and family office investors. The wealth of their investment experience and the depth, strength and stability of their advisory and investment team amounts to over 100 years.  With offices in Stellenbosch, Somerset West and Johannesburg, the firm is one of the most experienced in terms of assets with over R16 billion under advice.

Mart-Marie 

Mart-Marie De Jongh is a Certified Financial Planner Professional (CFP®), with more than a decade’s wealth management experience. She is responsible for developing and implementing financial plans for GraySwan private clients, covering all areas of finance, including pre-and post-retirement planning, offshore investment planning and estate planning. In addition, she also provides financial advisory services to family businesses and small to medium-sized companies. She has a keen interest in behavioural finance and a passion for empowering people to understand their portfolios.

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