Over the past few years, local investors and commentators have called for the offshore limit on retirement funds to be raised or scrapped altogether. Much of the case rests on access to better investment opportunities and sidestepping the South African economy which has grown at a pedestrian pace for more than a decade – just 0.7% a year over the past ten years ending 2025. That argument presupposes that pension fund members are trapped in South Africa. We do not think that is the case.
Members already have offshore exposure
We would argue that retirement fund members are far less trapped in South Africa than the debate suggests. Retirement fund members already have a meaningful offshore exposure before a single rand of the 45% offshore limit that applies under regulation 28 of the Pension Funds Act is used. Many of the JSE’s largest companies are multinationals, duel listed groups or commodity exporters that earn
their income in foreign currencies. Estimates of how much of the JSE All Share’s revenue or earnings coming from outside of South Africa vary with methodology over time but generally, the range clusters around 60%. This share is not fixed. It moves with exchange rates – a stronger rand reduces the rand value of offshore earnings while a weaker rand does the opposite.
Given the acceptable knowledge of a large offshore exposure, raising the cap or removing it, with investors following suit and allocating more to offshore, this could shrink member’s genuine rand earnings base quite considerably. This matters because members’ liabilities are in rand. Most will spend their entire retirement in South Africa paying for food, medical care and rent in rand. So, a heavy offshore allocation creates a mismatch between currency of their assets and that of their liabilities. As a risk sensitive currency, the rand tends to weaken when global markets sell off, which can cushion offshore holdings in rand terms. The flip side however is that a rand rally erodes offshore returns. In 2025, the rand gained 13% against the US dollar, the biggest annual gain in 16 years.
Weak growth has not meant weak returns
South Africa’s weak macroeconomic backdrop might suggest that local equities cannot deliver strong returns, pointing investors offshore. The numbers, however, didn’t necessarily say so.
Figure 1 compares the total returns of the FTSE/JSE All Share Index with those of the MSCI All Country World Index (ACWI) which covers developed and emerging market equities, in rand terms.
Figure 1 compares the total returns of the FTSE/JSE Al Share Index with those of the MSCI ACWI in rand terms to the end of August 2026
Over ten years, the JSE All Share has lagged the ACWI in Rand terms. Over seven years and shorter periods, however, the picture reverses – the local market has outperformed.
The point is, in search of opportunities abroad, we should be careful not to throw the baby out with the bathwater – good returns can still be made from the local bourse. Despite the country’s weak growth, the local market has delivered strong returns from time to time. In 2025, the JSE All Share delivered a total return of 42.4%, its best calendar year since 2005, even though real GDP grew by only 1.1%, well below the 3.3% IMF estimates the global economy grew. Part of the explanation lies in the point made earlier: the JSE is not the South African economy. The MSCI ACWI on the other hand delivered 22.3% in US Dollars and considerably less in Rands once you take account of the currency strength.
Diversification is not a free lunch
There are other reasons to be cautious when pushing offshore allocations much higher. Offshore investing is not a free lunch, and its diversification benefits are much harder to capture than once were. Globalisation has increased the extent to which markets move together. The 2026 UBS Yearbook notes that by the end of 2025, US equity market concentration was at its highest level in at least 100 years, while correlations between developed and developing markets and between equities and bonds had also risen. With the US accounting for 62% of the world equity market value, essentially, a global index allocation heavily leans on a relatively small group of very large US companies.
A more considered debate
To be clear, we are not arguing against investing offshore. On the contrary, in our view offshore assets have an important place in a well-diversified portfolio. We are simply advocating for a more considered approach rather than being narrowly focused on chasing returns. The offshore exposure members already hold through JSE listed companies, the currency in which their liabilities are held, depth and liquidity of the local market, amongst other considerations, should also be weighed.
