The Rand has been very strong over the last 12 months. In fact, it has increased in value against the Dollar by more than 20%. This has caused some investors to question if they should continue sending money overseas or if they should wait for the Rand to get even stronger. Whenever we make big investment decisions (like how much money to invest overseas) we should always think about long term prospects and not worry too much about what happens over a short period of time.
Why is the Rand strong now?
Most of the big South African fund managers have been optimistic about the SA stock market since 2020. They have become convinced there are some high-quality SA investments that are very cheap while they are worried that some international markets (especially the USA technology shares) are expensive. That has caused some fund managers to reduce the amount they have invested overseas so that they can allocate more money to the local market. This has helped the Rand get stronger as more fund managers are selling Dollars and are buying Rands.
South Africa is also exporting a lot more commodities like gold, iron, and platinum while we are importing a lot less goods than we did before COVID. This means we are accumulating more Dollars in South Africa and selling fewer Rands. This is called a trade surplus and when this happens, the Rand strengthens.
There is also an increasing appetite for Emerging Markets from Global investors. This means they want to invest more money in countries like China, Russia, India, Taiwan and South Africa. As this happens, they buy more shares and bonds in our countries and this is also very positive for the Rand.
Another major factor is the rising price of iron, platinum and gold which is positive for South Africa and when commodity prices rise, it results in a strong Rand.
All these factors are causing the Rand to strengthen by a large percentage, which is great for those who need to allocate more money overseas as they will get more Dollars for every Rand invested.
What to do if you need more overseas investments?
With all this good news about the Rand, it might be tempting to stop investing money overseas. It is important to stick to your plan. If your portfolio is does not have the enough of an offshore allocation, now is a good time to get the balance right because of the strength in the Rand. It is a great time to send money offshore, don’t keep waiting for things to improve further because the cycle can always turn again. I believe that all investors should have a minimum of 25% of their assets overseas while wealthier families might need to have more than 75% of their money invested offshore.
Warren Ingram CFP® is the host of Honest Money and the co-founder of Galileo Capital