Best returns as SA heads for junk status? Currencies, Cape property – investment expert

As South Africa braces for a possible downgrade to junk status by ratings agencies, investors should reassess their asset allocations. That’s the message from Andrew Rissik, MD at Sable Forex, who says that while investors appreciate South Africa’s high money market rates now, this situation could change fast. South Africa could easily tighten the exchange control screws, he says, so if you are planning on diversifying your assets globally, seriously consider acting sooner rather than later to move as much cash offshore as possible. But if international assets are not for you, explore adding a Cape Town property to your portfolio. Residential bricks-and-mortar in the Mother City have been producing double-digit returns, elevating residential real estate in the city on the tip of Africa into the league of the world’s best-performing markets, Rissik reminds investors. – Jackie Cameron

By Andrew Rissik*

The Rand is in turmoil, seemingly strengthening only to become a victim of the vagaries of politics and our bleak economic outlook. However, the recent strengthening of the Rand, which lulled South Africans into a state of post-election elation, had little to do with the voting, but was rather based on the Rand being under-valued. Admittedly, the devaluation that followed, was a jittery market reaction to another episode in Days of Our Lives in the Treasury and a lack of investor confidence in the outcome.

South Africa has the highest money market rate in the world and this trend will continue while governments are dropping interest rates elsewhere.

Top SA cartoonist Jerm (aka Jeremy Nell) offers his take on Nenegate. Access more of his work by clicking here.
More magic available at www.jerm.co.za

Our money market is attractive for hot money because of the 7-10% return.  If our circumstances deteriorate, this will be immediately withdrawn, causing the obvious wild swings we are becoming used to, this is not sticky long term capital and can take flight as easily as its comes in.

Globally governments are selling government bonds for negative yields. Investors are paying to get less money out in 10 years, so are hunting for yields and are finding them in the Rand.

Our currency is not only driven by political circumstances, there are also other emerging markets with a better risk profile.

Don’t be fooled by short-to-medium term strengthening; in the long-term, the Rand will continue to weaken, but take advantage of the strengthening rand this week, with the rating agencies hovering on the edge, you never know.

Investors have been referring to the ‘Brexit dividend’ where the Rand went from 25 to 17,3 to the BP.  Currently the UK is a cheap option compared to the US.

Read also: Emerging markets expected to deliver higher yields

I believe the 7-9% devaluation per annum will continue, although mild sentiment will control the deviation.

I would encourage offshore investors to take advantage of the R10 million offshore allowance, with the looming threat of junk status looming, the government might tighten capital controls, so diversify while you can.

What if South Africans want to stay invested locally? In this situation, remain diversified in your investments. However, if you are dead set on staying invested in South Africa the booming urban property market could be worth considering.

Just looking at the example of Cape Town, we see an urban property market that has grown at a rate well above inflation over the last few years. Both foreign buyers and local investors have been flocking to the seaside capital for years now and this trend shows no signs of slowing.

Cape Town

You need only look out to horizon in the city and its proximate suburbs and see the amount of massive residential building projects being undertaken.

Property value growth in Cape Town is among the highest in the world, coming in at 16.1% over the period of June 2015 – June 2016. This puts the Mother City third behind Shanghai and Vancouver in the Knight Frank Prime Global Cities Index.

So if you’re looking to make an inward investment in South Africa, a carefully selected property in Cape Town could be one way to do so.

Andrew Rissik is MD of Sable Forex. Sable is a group of professional services companies that specialises in small and medium-sized businesses, private individuals and clients with international interests or links. We manage the accounting, wealth, financial, currency and nationality needs of our clients and are fully qualified to provide a comprehensive business solution. We have offices in the UK, South Africa and Australia.

www.sable-group.com