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'South Africa still a good place to invest'
BOE NatWest's Tom Boardman advises investors to put their funds in equities, writes LUCIENNE FILD
Boardman says this was the reason the relaxation of exchange controls did not result in a rush of funds out of the country. People who wanted to invest offshore did so long ago, he says. Estimates are as much as R28-billion of South African savings - leaked out of the country over the past 40 to 50 years - were invested in tax havens, particularly in the Channel Islands. The islands were of particular interest to South African investors because they were easy to access, the language was familiar, and they fell within the same time zone. Boardman says further relaxation of exchange controls - leading to a total scrapping of them - could be expected in the next one to two years. This, he says, will make things even more difficult for the average investor than they have been since July 1. Before then, local investors had to restrict their choice to SA equities, property and cash investments. Now, they not only have to choose between these investment categories, but must also identify a country and foreign currency in which to invest. Previously, the private investor decided on an investment and then chose a fund manager to execute the decision, says Boardman. Now, though, the process of choosing investments has become so complex that a completely new group of people will be needed to steer the investor in the right direction. Investors may have to seek the help of an independent investment adviser who - at a disclosed fee - will refer them to an investment specialist. The specialist will in turn identify a fund manager, who will finally invest their money in an appropriate investment instrument. While this new process may increase the cost of investing, Boardman says this step will protect the investor from the inevitable claims made by fund managers that they are the best in their fields. Choosing the right investment might not be easy, Boardman points out, but "investing is the sacrifice of current consumption for future security". So, in order to achieve future security, should you take your money offshore? Unless you believe the rand could collapse following negative sentiments, you are probably better off investing your money in South Africa right now, says Boardman. However, he stresses that no matter where you invest - either onshore or offshore - timing the market right is crucial to the future returns of your investment. "While geographic diversification makes sense, if the major portion of your liabilities and commitments are in rands, then the biggest part of your investment should be held in rands," he says. Boardman's advice to local investors who want to accumulate wealth is to concentrate on equities in South Africa. And investors who want to take their money offshore will have to carefully investigate different market sectors to find good returns. Equities in South Africa over the past five, 10 and 20 years have far outperformed the inflation rate and other investable assets, such as property trusts, fixed deposits, gilts and mortgages. Local investors will have the right mix if the majority of their investments (50% to 60%) were in equities, according to Boardman. While equities were the overall performer in the world markets over the past 20 years, the picture changed substantially over the past five to 10 years. In Europe equities were still tops beating both bonds and property. In the UK, surprisingly according to Boardman, property beat equities and bonds. In the US, property also outperformed equities and bonds. In Japan bonds showed a substantially higher return than equities, while property recorded a negative performance.
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