The South African rand is one of the most volatile currencies in the world, more so than many of its emerging market peers. In fact, over the past decade, only the Russian rouble and Argentinian peso have been more volatile. The currency’s movements are often driven by global developments, ranging from shifts in investor confidence to major economic events.
Given this unpredictability, many investors worry about when to take money offshore. What if the rand strengthens after you invest, and your international holdings are worth less in rand terms? It’s a fair concern, but history shows that trying to perfectly time the exchange rate is rarely necessary to build long term wealth.
Counterbalance of exchange rate and equity markets
Over the past 25 years, global equity returns have typically outweighed the impact of exchange rate fluctuations. In fact, global equities tend to perform strongly when investor sentiment is positive—often at times when the rand is under pressure. This means that the rand and global stock markets don’t usually move in the same direction.
Even during the four occasions in the past two decades when the rand was severely undervalued (as shown by the green dotted lines in Graph 1), investors still ended up with positive returns in rand terms. In those instances, the rand strengthened by 12% – 35%, yet global equities surged by 35% – 100%. This underlines a key point: investing offshore just before the rand recovers is not ideal – but it’s far from disastrous.
Graph 1: Rand exchange rate vs global equities
Looking at the opportunity cost
The offshore equity investment outperformed the STeFI (benchmark for a low interest short term saving vehicle) in three of the four periods despite the rand strengthening significantly. So, what’s the alternative? If you wait in a money market account, your capital may grow slowly, often below inflation. You could consider local equities—but investing in them over the short term comes with its own risks, especially in a volatile domestic environment.
Our local challenges—including energy supply constraints, logistics bottlenecks, and policy uncertainty—make it difficult for South Africa to fully benefit from a weaker currency through increased exports. At the same time, our growing fiscal deficit adds another layer of concern, with investors demanding a risk premium to hold South African assets.
At current levels (around R18.30), the rand appears undervalued—but there are no clear catalysts for a sustained recovery. This creates an opportunity: instead of waiting for the “perfect” moment, consider focusing on building your wealth over the long term by diversifying across geographies and economies.
By investing a portion of your portfolio offshore, you reduce your dependency on a single country’s economic outlook and give your retirement savings a better chance to grow in more resilient global markets. Global equities not only provide access to innovative industries and established economies but also to selected emerging markets that are showing strong potential for growth.
How to position your portfolio wisely
Diversify across regions and asset classes – Don’t put all your eggs in one (local) basket. Offshore investments offer exposure to a broader range of opportunities.
Take a long term view – Strategic asset allocation aligned with your goals can help you ride out short term currency fluctuations.
Review your plan regularly – Speak to your financial adviser to ensure your portfolio still aligns with your goals for wealth creation and retirement security.
Offshore investing isn’t about calling the rand – it’s about giving your money the best possible chance to grow. By taking a disciplined, long term approach, you can navigate currency movements while staying focused on the bigger picture: securing your financial future.