Why you shouldn’t be too quick to rush your rand out of SA

South Africans in general are not upbeat about the local investment landscape, and who can blame us? 

Load-shedding cost the economy R300bn in 2022 alone — the equivalent to about 5% of the country’s GDP, according to an estimate from the Bureau for Economic Research.

The increasing economic growth pressure caused by severe electricity shortages led to S&P recently downgrading SA’s credit rating outlook from positive to stable. 

There is also a looming crisis at Transnet’s rail division and a number of scathing reports of systematic and organised corruption.

And, finally, SA has been hit with a Financial Action Task Force (FATF) greylisting, a label the international watchdog slaps on countries that are not doing enough to prevent global money laundering and terrorist financing activities. 

So it’s not surprising that South Africans are wary of investing locally and foreign investors are pulling out. Don’t be too quick to react, though, because if you look at the bigger picture, there are opportunities amid crisis.

Four major opportunities should make South Africans say twice before rushing all their money offshore, and should pique the interest of savvy, long-term foreign investors: 

1. Energy privatisation potential

Just as the introduction of cellular technology in the mid 1990s allowed SA to reduce reliance on its fixed-line telephony network, the partial deregulation of the energy complex should reduce reliance on Eskom and create a more competitive — and reliable — energy landscape. 

The Western Cape’s heavy investment in renewable energy will reduce demand on Eskom, while the private sector is poised to bring extra relief in the form of additional energy supply. Investec estimates that SA’s mining sector has a pipeline of embedded generation projects of 10GW — nearly double the amount of power being load-shed. And that excludes all the industrial companies and residential properties investing in solar. 

All in all, aside from alleviating our energy woes, the opening up of the energy sector is set to attract investment and create sorely needed jobs. 

2. SA banks stand strong amid US collapse

The almost-overnight collapse of tech-centred Silicon Valley Bank (SVB) in mid-March marked the second-biggest banking failure in US history, and the first time that the US government has taken control over a major bank since the 2008 financial crisis.

President Joe Biden’s government did so largely to prevent a mass panic withdrawal from other banks, triggering a banking crisis in the US. But at the time of writing, this strategy was not going too well.

Within days of the collapse of SVB, Signature Bank customers got so spooked that they withdrew $10bn. This run on deposits quickly led to the Signature Bank becoming the third-largest bank failure in US history, and regulators were again forced to take control to protect depositors and the stability of the US financial system.

At about the same time. Silvergate Bank — another bank with a large number of customers in the crypto industry — announced it was shutting down, largely because the collapse of cryptocurrency exchange FTX had led to a devastating deposit run on the bank. 

Hopefully US regulators will be able to halt the domino effect on their banking system, but in the meantime SA is considered one of the global safe havens in banking terms. The rand has strengthened as a result of our banking system’s strength against the backdrop of US bank collapses. 

3. Globally diverse local stock exchange

Years of battling low growth and a lack of local investment opportunities on home soil have resulted in the JSE being well diversified globally, with 55% of the shareholder weighted index now exposed to non-South African revenue.

This is largely due to local companies investing offshore, particularly the mega-cap stocks such as Naspers, Richemont, Anglo American, British American Tobacco, AB InBev, BHP Billiton and Glencore. In addition, many South African-domiciled companies, such as Aspen and MTN, have strong offshore earnings.

And if a 55% offshore exposure is not enough for you, the all share index has 65% offshore and the top 40 index has 70% offshore.

All in all, despite growth remaining low in SA and investment opportunities dwindling, the JSE is well-diversified and protected against threatening factors such as load-shedding, the FATF greylisting and the S&P credit downgrade.

4. The rand’s resilience

Most people invest in SA to retire in rand and, despite dips, the rand can appreciate for years — as much as 30%, as it did from mid-2020 to mid-2021.

As such, pulling out your rand investments shortly before retirement is risky if you are planning to retire in SA, so managing overall currency exposure becomes vital. For example, Rand Merchant Bank’s research shows that if you have 100% of your money in offshore equities, you should hedge half the currency back into rand. 

If hedging is not available, you could keep some money invested in South African equities with a 55% to 70% offshore exposure or invest in balanced funds that have a good mix of local equity, global equity and global equity hedged back into rand.

These are just four of the positive investment opportunities to emerge out of the local and global challenges.

The team at Sygnia Asset Management, a specialist financial services company that aims to turn ordinary savers into extraordinary investors, holds the firm belief that SA’s entrepreneurial spirit will prevail, as it has in the past, and that South Africans will continue to find investment opportunities amid the turmoil.

This article was sponsored by Sygnia Asset Management.