The recent volatility of the rand, with experts predicting further weakness, as well as extended low growth in local markets, has led many investors to cast their eyes offshore. No investment should be made on sentiment or emotion alone, so what exactly constitutes a considered approach to offshore investing?
But South African stock market valuations look expensive. The recent correction in global financial markets has left developed market equities about 10% cheaper and emerging market equities 25% cheaper, removing a lot of the valuation froth that was evident.
With the current equity market bull run about six years old, once buoyant investor sentiment has turned cautious in the wake of a significant increase in market volatility, and ahead of the expected lift-off in US interest rates.
The recent correction in global equity markets removed a lot of the froth evident in valuation levels a few months ago and, looking ahead, global equities are likely to be supported by continued accommodative monetary policies and low bond yields.
Global equities are likely to benefit most as the theme of resynchronised global growth continues playing out over the coming year, with developed economies accelerating gradually and emerging markets bottoming out.
With South African equities trading at a hefty valuation of more than 18.5 times historical earnings, investors should continue to look offshore where prices are more attractive, and to improve diversification and take advantage of potential currency weakness.
The main risk for global financial markets over the next few years is how ultra-accommodative monetary policy, unprecedented in size, is unwound.