With the South African rand gaining almost 29 percent against the US dollar, 22 percent against the euro and 17 percent against the pound sterling, the local currency is turning out to be one of the world’s strongest currencies for the year to date. Many potential investors are asking whether this is not a good time to reconsider increasing their international exposure.

Dr Prieur du Plessis, Plexus group chairman, warns investors against being too clever by trying to time the currency or banking on any significant weakness in the rand to generate good returns. While some market participants predict that the rand may strengthen to below the R7.00 level, Du Plessis believes international diversification is imperative for a sound investment portfolio. "This is especially true if most of your assets are invested in an emerging market such as South Africa," he says.

Rand movement less significant

Du Plessis believes rand movement will play a less significant role in investment returns in future and that investors should rather focus on the fundamental return potential of the different offshore investment asset classes and geographic regions.

According to Du Plessis, the results of the latest World Survey of Business Confidence by Moody’s Economy.com show that a tentative global economic recovery has begun. "Business strongly expects conditions to further improve later this year and early next year. Sentiment is strongest in Asia and South America and among business service firms. European businesses and those that work in government are the least upbeat. Pricing power is consistent with very low rates of inflation," says Du Plessis.

These results were confirmed by the Duke/CFO Magazine Global Business Outlook Survey, conducted among chief financial officers at 650 companies in the US and nearly 900 in Europe and Asia. "According to the survey, it appears that the Great Recession is ending and economies around the world are stabilising. However, the analysis indicates that recovery will be lethargic, with employment growth lagging behind the rest of the economy," he adds.

Equities the best performer

Despite this, Du Plessis believes equities will be the best-performing asset class over the next few years. He does not favour bonds as an asset class. "With the improvement in the global economy set to gain momentum, long-term interest rates will begin to rise (the trend has already turned in the US), resulting in capital losses in the bond market," says Du Plessis. "Cash is also not an option as rates are low and will probably remain so for some time to come. The international property market offers some good opportunities." (Click here for information on buying international property.)

Du Plessis warns investors that some caution is still warranted. "After the strong rally in global equity prices since the March 2009 lows, equity prices in general have got ahead of fundamentals," he says. "The MSCI World Index has recovered by over 63 percent and the MSCI Emerging Markets Index has risen by over 87 percent. As the chances of a pull-back are good, investors should rather phase money into equities over the next few months than invest a lump sum right now."

South Africans can invest offshore by using their foreign investment allowance of R2-million per individual taxpayer. To do so, you need permission from SARS to remit funds offshore and this requires your tax affairs to be in order. You can then choose to invest in any of the myriad offshore funds investing across the globe.

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