Investing offshore is ALWAYS a good idea – Andre Cilliers of TreasuryONE

In this week’s Currency Focus podcast with Jackie Cameron, Andre Cilliers – currency strategist at TreasuryONE – underscores the benefits of offshore diversification. He shares how data from around the world play into sizing up the value of the rand and picks up on recent volatility, with the South African currency dipping below R14 to the US dollar. According to the currency expert, it’s still a great time to take advantage of the rand’s strength relative to major currencies. 

Andre Cilliers on what’s happening with the rand:

We’ve seen it dipping again and if you look at what’s really happening then it’s a story of the dollar weakening. The euro has gone above the 122 levels and breaking the 122 level was quite significant. And the next target level is actually now reaching up into the 123s, etc., which means that there could still be some further gains on the rand if that actually happens. We have the Federal Reserve meeting minutes coming out and then we’ll see what was discussed and what was the feeling of the people within the meeting and also how they look going forward and their view on going forward.

On the key figures he uses to assess the rand: 

There are various figures. If I go back to the 80s, the name of the game was looking at the trade balance. And you go to October 1987 and markets tumbled and stock exchanges tumbled because the trade balance figure of America went above 17 billion, which today is actually a drop in the bucket. So there’s certain things over the years that comes to the forefront and that becomes vital. Now, if you go to 2020 and you look at the pandemic, then the pandemic and the figures surrounding the pandemic and the impact of the pandemic had become vitally important. And the one place that everybody looks at at this point in time is the American economy and how that will grow and how growth in the world will spin off from that growth and also the growth out of China. Inflation figures, interest rates, retail sales, any economic figure out of America at this point in time, that gives you an indication of what the growth could be and where the growth will be going is important and the impact of that growth on the rest of the world and eventually then also South Africa.

On the role that China plays for SA’s figures:

Well, the Chinese forecast is extremely important and the figures coming out of China is extremely important. We must remember that China is one of our biggest trading partners. There’s a lot of trade being done with China. There’s a lot of commodity exports. There’s a lot of other imports out of China into South Africa. We all know if you go into the shop and you buy something, it says ‘made in China’. So a little hiccup in China causes influenza in South Africa because of the big trade figures and the trade amounts that we have with them. So you have to look at the Chinese figures very, very importantly. Also what happens in China, as I said, influences us.

So if China and America starts going into a trade war, and we know about all those trade war discussions over the four-year period that Mr Donald Trump was in power – it’s now sort of subsided with Mr Biden – but the tensions are still there. So tension between China and America – American sanctions of any kind, you know, regulations of any kind on China – anything that impacts on China, impacts on South Africa. They’re the second biggest economy in the world. So what happens there is important for us, not only just because of our trade figures, but because of the impact of the Chinese economy on the rest of the world.

On Europe’s impact:  

Once again – retail sales, the impact of their quantitative easing program, the level of their interest rates, how they come out of the pandemic, how growth figures are happening in the European economy. So every little piece of economic data coming out of Europe is important for us. They are also a very important trade counterpart of South Africa, and a lot of trade is being done with them. So, once again, literally every piece of economic data that you can get, every little piece of information that some politician drops, or a little bomb that they drop, or an outcry that they make about something, is important to us.

On the European side, because of our trade with them, they are very, very strict on their trade. If I think in terms of our citrus exports to Europe, for instance, in Europe, they have something called the prohibiting of importing black spot. Now, black spot is a tiny, tiny, minuscule little spot on a fruit that you get in certain parts of South Africa. Now, if there’s a certain amount of strikes in the European Union on getting any imports of fruit from South Africa with a black spot on it, then they close their markets off.

Certain industries are being watched by us and looked at. It helps that we’ve got a lot of customers through various industries and in our interaction with them, we’re also, apart from our own analysis and our own information, we also get information from our own clients in how they perceive markets to be pricing, whether the market is going up, whether the market is slowing, prices going up, etc. So a lot of information goes into the analysis of deciding what we actually think and where things can go.

On Australia and how it plays into the rand: 

Australia is also commodity-rich and also a commodity exporter. So if you have commodity prices going up and South Africa doing well out of commodities, then obviously Australia would also do well. And if there’s a hiccup in Australia because of something that happens in China, then there will be a hiccup in South Africa as well. And then there could be a hiccup between us and Australia. And we’ve seen many businesses out of South Africa opening offices in Australia. And obviously there’s been a lot of trade between us and them, not as much as with China, not as much as with Europe, but there is trade between us. And if there’s trade between South Africa and a country, then it’s important to watch those figures and to watch what happens in that country because it influences the trade reference and trade figures.

On whether it’s a good idea to invest offshore (and where to invest from a currency perspective):

It’s always a good thing to invest in other countries. It’s always a good thing to look at various options, to invest your money into various places and diversify your investment portfolio. At this point in time, with the rand being fairly strong and trading at very strong levels, it’s an extremely good time to actually look at increasing the pace at which you invest offshore and maybe do a little bit more than what you would normally do and get a little bit of a bigger foot into the door of offshore investments.

I think America is one of the countries that shows the better growth figures if you look at first world countries. America and their interest rates is at least still slightly positive. Europe will take a little longer to come out of the pandemic and get their growth figures back. I also think that Australia, with higher yields and also being a commodity-rich country, presents everybody with fairly good opportunities.

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