Knee-jerk rush offshore is not a sound response to weaker rand
Long-term goals and awareness of valuation should determine choices, not currency fixation
In the past about 18 months many investors have rushed to take funds offshore, precipitated by the sharp depreciation of the rand following the Nenegate debacle in December 2015. They continued in the wake of Gordhangate in March 2017 and the consequent sovereign credit rating downgrades. South Africans have a history of panicking when the rand weakens sharply and responding by taking money offshore. The rand should be expected to depreciate against the dollar over time. On the basis of purchasing power parity, economic theory holds the rand should depreciate by about 4% a year versus the dollar over time, based on the inflation differential between the two countries. Indeed, it has averaged about 4% a year over the longer term, albeit with wide variations over shorter periods. So did investors who panicked after notable rand depreciations — in November 1985 and December 2001 and more recently in December 2015 — benefit from moving offshore? A look at the equity market and currency ...
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