Real Estate Investor Magazine South Africa May 2016 | Page 62

EXCHANGE RATES

Should South Africans
be hedging against the Rand?
BY ANDREW RISSIK

2

011 marked a 20-year high against the US
Dollar, but that is all a distant memory now.
A perfect storm- consisting of questionable
national politics, a slump in emerging markets and an
ongoing global commodity rout- has caused the Rand
to devalue. South African investors are now looking
offshore.

Why South Africa is struggling to hold on to
its wealth

The SARB’s Q4:15 cash flow statistics show that
for 16 consecutive quarters outflows have surpassed
inflows. The last time we saw anything like this was
between 1995 and 1999 when there was an emerging
market crisis, as well as domestic political instability,
following the 1994 elections.
A factor that has contributed massively to the
Rand’s decline since 2011 is the prolonged slump in
commodity prices. This has caused mine closures,
a slow-down in industrial production and has
contributed massively to the worsening unemployment
landscape in the Republic. The fewer people have jobs,
the greater the likeliness of social dissatisfaction and
unrest. This spooks investors and discourages new
entrants to the South African market.

South Africans and offshore property

In times such as these, many wealthy South Africans
are asking advisers where they should be investing their
Rands. At this point many people are simply buying
foreign currencies. Australian and American Dollars,
British Pounds and Euros are all frequently bought by
South Africans in an attempt to have a relatively liquid
Rand hedge. However, these investments are not
always ideal for someone looking to not just preserve
their wealth, but also grow it. For these individuals,
offshore property is often a good investment.
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MAY 2016 SA Real Estate Investor

Mainland Europe is becoming an increasingly
popular destination for South African offshore
property shoppers. Several European countries offer
citizenship by investment schemes that allow South
Africans to acquire EU residency and, eventually,
citizenship. This is a massive bonus for South Africans
who have desires to work and live overseas for an
extended period of time.

The potential light at the end of the tunnel

Diversifying your investments is always a good bet.
Investing in property in a stable economy is also a
relatively safe, if somewhat unspectacular, way to
preserve your wealth. Panicking and divesting yourself
of all things South African is, however, not the most
prudent course of action. While the country is beset
by numerous problems, both political and economic,
there is cause for hope.
When we compare the Rand to other commodity
currencies like the AUD and the CAD, we see that
while we have struggled, we haven’t completely
collapsed. Commodity prices appear to have bottomed
out and there could well be a recovery over the next
few years. In addition to this, encouraging rulings
from the Constitutional Court and the unwillingness
of some ANC members to remain silent on corruption,
could help inspire investment in this country. Since
the political issues receive the most press attention, we
can only hope that the current impetus is not lost to
apathy.
For now it is very much a case of wait and see.

RESOURCES
Sable Forex
www.reimag.co.za