The JSE offers some offshore exposure, but doesn’t offer nearly enough access to the many exciting opportunities in the global market. Here’s a closer look at how global investing can open up assets, sectors and economies you have little to no access to in South Africa.
When it comes to supporting your favourite ‘Proudly South African’ business, local certainly is ‘lekker’, but when it comes to putting together a balanced, risk-adjusted portfolio, it would do investors well to make sure they have enough diversification.
Research shows that most investors have a bias towards over-weighting their investments in their country of residence. This is natural, and mainly due to factors like familiarity, comfort, or patriotism.
This kind of bias is likely even more pronounced in South Africa, as it’s one of few countries that still uses exchange controls to impose limits on the flow of investment capital abroad. The question is – do these controls help or hinder us?
Local investors limited to just 1% of investable opportunities
South Africa accounts for less than 1% of the global economy, which means that a significant majority of investment potential lies beyond our borders. Our domestic equities market, for example, makes up a mere 1% of the world’s total equity investments, with less than 500 companies listed on the Johannesburg Stock Exchange – compared to, say, the New York Stock Exchange, with over 2 400 listed companies.
This is before we even consider the other asset classes that make up important parts of a properly diversified portfolio. By investing globally, you can gain access to opportunities in sectors that perform strongly but are not readily available on the local market.
Access to sectors performing well and primed for growth
Take technology, for example. The S&P 500 is an index made up of the largest 500 companies in the United States – and technology makes up about 20% of it. Other industries like innovative auto manufacturing, utilities, renewable energy and healthcare research companies are primed for growth, but have little to no representation on the local market.
Electric car manufacturer Tesla, for example, grew 170% over one year. Other well-performing sectors include e-commerce (such as Amazon) and biotechnology (such as Gilead) – and these sectors, in turn, are influenced by global ‘themes’ such as digitisation or green-consciousness, which can have profound effects on the long-term growth of individual assets.
Time to rethink your long-term investment strategy?
If we follow the logic that the best investments are made by placing your money in the assets with the highest likelihood for the best risk-adjusted returns, then limiting your choices to the South African domestic market just doesn’t make sense.
It’s important to remember though that investing – especially global investing – is by no means a way to ‘earn a quick buck.’ Global investing is a medium- to long-term endeavour – it takes anything from five to 10 or more years to truly reap the rewards of a global investment strategy.
But patience is rewarded – because by gaining access to a broader universe of investable assets, global investing holds the promise of greatly enhancing your long-term expected returns.
- South Africa accounts for less than 1% of the global economy.
- By investing globally, you can gain access to opportunities in sectors that perform strongly but are not readily available.
- The best investments are made by placing your money in the assets with the highest likelihood for the best risk-adjusted returns.
- Offshore investing is a medium- to long-term endeavour.
- By gaining access to a broader universe, offshore investing holds the promise of enhancing your long-term expected returns.
This article is not financial advice. Please consult with a financial adviser for financial advice.
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