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A major easing of foreign-exchange controls presents South African money managers with the dilemma of whether or not to move more money offshore.
An amendment to prudential rules announced in last month’s budget enables pension and mutual funds to invest 45 percent of their assets abroad, up from 30 percent previously. That’s the largest adjustment yet made to the offshore limit, and gives South African investors the chance to “fundamentally” re-balance their portfolios, said Izak Odendaal, an investment strategist at Old Mutual Wealth in Cape Town.
Money managers have previously jumped at opportunities to increase their offshore exposure. But with global markets in flux as a result of Russia’s invasion of Ukraine, and South Africa benefiting from a stable rand and a rise in commodity prices, it’s not an easy decision this time round.
“A lot of investment houses are grappling with how to adjust our asset allocation,” Odendaal said in an interview. “You can think much more of South Africa as a regional portion of your portfolio, rather than the core of your portfolio. We’re still thinking this through. We haven’t made any decisions yet.”
Potential outflows
Pension and savings funds oversee a total of R2.96 trillion (US$197 billion) in the country, according to the Association of Savings and Investment South Africa. That means outflows could amount to R444 billion if money managers push their offshore allowance up to the new limit.
It’s unlikely that amount would flow out at once, though clients have expressed interest in moving more money abroad, said Victor Mupunga, a senior research analyst at Old Mutual Wealth Private Client Securities. The question is where to?
US stocks are historically expensive, the growth outlook in Europe is at risk due to soaring energy prices, and China’s regulatory clampdowns have weighed on emerging markets as an asset class, Odendaal said. Meanwhile, sanctions on Russia have, in effect, removed a major competitor to South Africa in the resources field, Odendaal said. Without Russia, investors seeking exposure to the emerging-market resources sector have few other options.
“This does reshape the whole emerging-market investment landscape,” Odendaal said. “And within that context, South Africa isn’t looking so bad.” – Bloomberg
Online Reporter