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Offshore Investing Can Be Lucrative

One of the earliest lessons a student of investment markets learns is not to let emotion dictate investment decisions. Unfortunately, that’s exactly the mistake most private investors make with offshore investing.

Eamonn Ryan

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The challenge is how to get private investors, mostly wealthy people who invested offshore a decade ago and are in some cases still in the red, to see value offshore.

Traumatic experiences are making many people blind to what is probably the best investment opportunity of the coming decade — the fact that one can buy world-class American and European companies at the same price as fairly average local ones. While the private investor is in danger of missing out, the institutional market is taking full advantage, with pension funds ramping up their offshore exposure to the maximum 25% (with a further 5% allowed for Africa). For instance, Gareth Johnson, branch head of Alexander Forbes Financial Services says institutional investors are investing almost too much in their offshore forays. If these in-the-know investors are so sure of the offshore market, should the private investor not be following suit?

Best Asset Class of 2011/12

John Duncan, technical marketing manager at Rand Merchant Bank Unit Trusts, says: “International funds will possibly enjoy a podium finish this year after disappointing local investors for over a decade. An overvalued rand may still continue to benefit from elevated commodity prices and favourable interest differentials in the next quarter or two but a weaker bias would underpin rand returns for international funds and balanced funds with rand exposure. Investors may have to wait until 2012 for some payback but the fundamentals appear to have swung in the favour of offshore assets.”

For those too-cautious investors who missed the JSE rally, there is still an opportunity to catch the offshore one. During the first seven weeks of this year the US market rose 7%, similar to the increase of the MSCI World index, while the JSE was down 5% (each in dollars) for an 11% differential. In addition, the rand has also weakened somewhat.

Stanlib Retail director Paul Hansen says the US market is up 28% in dollar terms since August last year and 26% in rand terms. “There’s no question private investors have already missed the first boat,” says Hansen, while urging that there’s still time for latecomers.

“The economic recovery in developed economies remains in its early phase, their interest rates remain low and despite the recent rally equities remain at historically low forward valuations of 13,7 times,” he says. In fact, the US market is still at its 1999 level, as is the MSCI World Index (or 2000 level in rand terms).

Last year the enthusiasm was all for emerging markets because of their superior yield to developed markets, but that story has changed in recent months with the impact of inflation. Hansen says he does not expect any improvement in emerging markets until food inflation cools, thereby leaving the field open to developed economies like the US, UK and the rest of Europe.

“The US is anticipated to deliver record corporate earnings by the end of 2011, last seen in 2007, on top of its low valuations. We see strengthening consumer spending, so it is still a sweet spot for equities. Therefore, we still like offshore despite the recent rally. At Stanlib, we’re very overweight offshore equities, and slightly underweight local equities,” he says.

With retail investors running scared of equities, there is little else to appeal in the offshore market: the money market is offering a 0,05% return and the bond market 3% to 5%. Stanlib reckons the average investor should prudently have 20% to 30% of their total assets offshore, within a wider range of 15% to 40%. Stanlib head of offshore investments, Anthony Katakuzinos, says the rationale for investing offshore should not require any further explanation than the facts that South Africa accounts for barely 2% of the global economy, we’re an emerging market, and we remain highly concentrated on commodities.

“Offshore gives you exposure to a lot of key industries that simply do not exist on the South African markets, and at valuations that compare favourably with local listed companies. Furthermore, offshore gives you exposure to other emerging markets.”

Incredible statistics abound, with China boasting 850 million mobile phone users and now overtaking Japan to become the world’s second-biggest economy. Brazil has added 2,6 million jobs to its formal sector alone in 2010. Investec Asset Management reports that returns to date have vindicated this approach, with developed markets delivering a disheartening -2,9% to rand-based investors over the decade ended 31 January 2011, while emerging markets surged 128% and South Africa delivered an astonishing 197% over the same period.

“The nature of diversification is that countries all perform differently, so it stabilises a portfolio,” says Katakuzinos. Recognising the bad experiences that many investors have had offshore, he says people have to put that behind them, just as they have to put any sort of poor investment behind them or miss out on future opportunities.

“Back in 1998/99 at the height of the offshore dot.com bull market, valuations were 35 to 40 times, whereas today the MSCI Worldwide index is 15 times, and on a forward earnings is only 12,5 times. In addition, the rand is extremely strong compared to a decade ago — so the circumstances are vastly different.”

Given that retail investors remain highly cautious and conservative following recent market volatility, Katakuzinos points out that property funds are currently offering superior returns to vanilla cash investments for the conservative investor. “They’re showing reasonable yields of 5% to 7%, compared to less than 1% on the money market,” he adds.

Currencies Count

For cultural reasons, South Africans tend to look first and foremost at the US dollar, the British pound or the euro as a distant third, when it comes to selecting a currency for their offshore investments.

Tristan Hanson, head of asset allocation at Ashburton, describes what he calls ‘some very interesting alternative currencies’. “We tend to like currencies in emerging markets at the moment, especially in emerging Asia. Through our products we are in a position to give clients exposure to currencies such as those of China, Korea and Malaysia, which we believe will appreciate over the long run.” Unlike the rand (and currencies of developed economies) these currencies do not float entirely free but are closely managed by their central banks, primarily against the dollar, reducing volatility.

Before becoming a financial writer and freelance journalist in 1997, Eamonn Ryan was a legal adviser, company secretary and alternate director at listed company Cashbuild Limited from 1988 to 1997. Since becoming a financial writer, he has focused on the business and financial sectors, as well as personal finance, writing for Finweek, The Star Business Report, Sunday Times Business Times, Business Day, Mail & Guardian, Entrepreneur, Corporate Research Foundation (which brings out a series of books each year ranking SA’s best employers and best managers), as well as a host of once-off and annual publications such as ‘Enterprising Women’ and ‘Portfolio of Black Business’. He also writes media releases, inhouse magazines and sustainability or annual financial reports for various South African corporates and financial services groups, including the Ernst & Young annual M&A book.

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1 Comment

  1. joe johnston

    Jun 22, 2011 at 00:27

    I think when you say that pegging a currency against another one reduces volatility, that is a subjective statement. It could go either way, up or down and the risk you now carry is not in your own economy’s strength, but based on another economy’s strength. Your currency might be less volatile for speculators to hurt, but in terms of risk, it’s much greater. Even though I said risk, consider the domino effect that could take place if the dollar tanks. If that ‘tanking’ does occur ( it’s not unrealistic to state that the US economy is on thin ice ) then all those asian currencies are going to see speculators milk them like obese cash-cows turning into drought-stricken cattle.

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11 Things You Need To Know About Bitcoin

The cryptocurrency has had a tumultuous existence so far.

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11 Bits about Bitcoin

Even the most tech savvy among us have a hard time wrapping their heads around Bitcoin. It’s a hot topic and a frequent point of discussion among investors, entrepreneurs and stock traders, so you should want to know all about it.

For starters, here’s an overly simplified explanation of Bitcoin: It’s a digital currency (there are more than 800 now) that isn’t controlled by a central authority such as a government or bank. It’s created by “miners,” who use computers and specialised hardware to process transactions, secure the currency’s network and collect bitcoins in exchange.

Supporters say it allows for more secure transactions over the internet. That’s in part due to blockchain, a technology that records cryptocurrency transactions chronologically in a public digital ledger.

Bitcoin is only eight and a half years old, but it’s the oldest and most highly valued cryptocurrency out there. In such a short time, it’s had a rocky and controversial history, but it’s also attracted a fair share of high-profile supporters.

Related: 6 Rookie Investor Mistakes You Must Avoid For Profitable Investing

Click through to read 11 bits about Bitcoin that will make you at least sound like you know what you’re talking about next time it inevitably comes up.

The birth of Bitcoin

birth-of-bitcoin

Starting point at 2008

The origins of bitcoin trace back to 2008, when its creator, who went by the pseudonym Satoshi Nakamoto, published a proof of concept for Bitcoin.

The proof was then published to a cryptocurrency mailing list in 2009. Nakamoto left the project in 2010 and disappeared, but other developers picked up the work.

Bitcoin’s birthday is Jan. 3, when Nakamoto mined the first 50 units of the currency.

An elusive creator

elusive

No one really knows

The true identity of Bitcoin’s creator has never been confirmed. Newsweek claimed to have found Bitcoin’s creator in 2014, identifying Temple City, Calif, resident Dorian Satoshi Nakamoto. He has vigorously denied it.

In 2015, an Australian entrepreneur named Craig Wright said he was Bitcoin’s creator, but he couldn’t produce the evidence to support his claim.

Whoever Nakamoto is, that person is very rich, as the creator is estimated to have mined a million bitcoins in the currency’s early days.

Very expensive pizza

pizza

We wonder what was on the pizza?

The first transaction involving bitcoin was reported on May 22, 2010, when a programmer identified as Laszlo Hanyecz said he “successfully traded 10,000 bitcoins for pizza.”

As of June 14, 2018, 10,000 bitcoins are worth about $64.8 million.


Fintech: Fusing Finance And Technology

Fintech has become a disruptive force in the financial sector that is threatening the current status quo of banking and finance. The main beneficiary of that is the consumer.


You can spend bitcoins

spend-bitcoins

How to spend your bitcoins

While it may not seem like it, people continue to use bitcoins to buy stuff.

Related: Make The Most Of SA’s Law And Initial Coin Offering

The largest businesses to accept the cryptocurrency include Overstock.comExpediaNewegg and Dish.

Federal Bureau of Bitcoin

Federal Bureau of Bitcoin

The banning of Bitcoins

At one point, the U.S. government was one of the largest holders of bitcoin.

In 2013, after the FBI shut down Silk Road, a darknet site where people could buy drugs and other illicit goods and services, it took over bitcoin wallets controlled by the site, one of which held 144,000 bitcoins.

Investors have been making a killing by bidding on government-seized bitcoins.

A mountain-sized setback

Mt. Gox

Mt. Gox

In early 2014, Bitcoin suffered a devastating loss after the alleged hacking of Mt. Gox, a Japanese exchange.

About $460 million of the currency (in 2014 value) was stolen. It was the largest loss of bitcoins ever and raised concerns about how secure the currency was.

The billionaires’ takes

warren-buffett

Warren Buffett

Warren Buffett, perhaps the most famous investor in the world, was not so keen on Bitcoin one of the only times he addressed the currency.

“Stay away from it. It’s a mirage, basically,” he told CNBC. “The idea that it has some huge intrinsic value is a joke in my view.”

Fellow billionaire investor Jamie Dimon, chief executive of JPMorgan Chase, had even stronger words about Bitcoin:

“You can’t have a business where people are going to invent a currency out of thin air. It won’t end well … someone is going to get killed and then the government is going to come down on it.”

But not all billionaires are against Bitcoin. Mark Cuban has said its value is inflated, but he recently invested in a venture capital fund that backs cryptocurrency. Richard Branson, however, has spoken more optimistically about it.


The Currency Revolution

The rise and rise of digital currencies – and how they’re affecting your business.


Wealthy twins and a smart teen

Cameron and Tyler Winklevoss

Cameron and Tyler Winklevoss

Other notable investors in Bitcoin include Cameron and Tyler Winklevoss (the Harvard-educated twins who sued Mark Zuckerberg claiming that Facebook was based on an idea they’d had).

They invested $11 million into Bitcoin in 2013, an amount said to be about 1 percent of all bitcoins in circulation at that time. The Winklevoss twins have been petitioning the SEC to create a bitcoin exchange traded fund.

The agency rejected the idea earlier this year.

Another is investor and entrepreneur Erik Finman, who invested $1,000 into Bitcoin when he was 14 years old and is now a millionaire.

Celebrities want in

ashton-kutcher-2017

Ashton Kutcher

Celebrities have also expressed enthusiasm for the cryptocurrency.

Actor and Goop founder Gwyneth Paltrow advises Abra, a Bitcoin wallet, and Ashton Kutcher, Nas and Floyd Mayweather have all invested in Bitcoin start-ups.

Support from a big financial institution

Fidelity Investments

Fidelity Investments

In August 2017, Fidelity Investments became a rare standout among financial institutions in embracing Bitcoin and other cryptocurrencies.

The company allows its clients to use the Fidelity website to view their bitcoin holdings held through digital wallet provider Coinbase.

“This is an experiment in the spirit of learning what these crypto assets are like and how our customers may want to interact with them,” Hadley Stern, senior vice president and managing director at Fidelity Labs, told Reuters.

A hard fork

Bitcoin Cash

Bitcoin Cash

On Aug. 1 2017, Bitcoin experienced what’s being called a “hard fork” as a result of a few issues, including the limited number of transactions that can be processed per second. Essentially, the cryptocurrency split into two, with Bitcoin Cash debuting.

Here’s how Rob Marvin of PCMag explains the situation:

“The Bitcoin fork speaks to a fundamental ideological rift over what’s more important: Preserving the decentralised nature and independent control of the Bitcoin network, or accelerating transaction speeds to make the cryptocurrency more viable for mainstream ecommerce and payments.”

Bitcoin Cash allows larger blocks of currency and more transactions per second.

This article was originally posted here on Entrepreneur.com.


Related: 10 Ways To Make Money While You Sleep

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9 Warren Buffett Quotes That Will Teach You More Than Just Investing

While he is one of the most famous investors in the world, his expertise goes beyond money.

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Check out these nine quotes on time, success, mindset and more

There’s more to learn than finance from one of today’s most famous investors, Warren Buffett. In fact, the businessman, financial guru and philanthropist can teach you a thing or two about life. From taking risks to coping with change, Buffett’s expertise that expands far beyond stocks and dollar signs.

From a young age, the billionaire investor was destined for success – selling garbage bags to neighbors and delivering newspapers. By age 15, Buffett was already worth thousands of dollars and investing in real estate.

However, fast forward nearly 70 years and the “Oracle of Omaha” is now worth a whopping $77 billion, according to Forbes, making him currently the second richest person in the world (behind only Bill Gates).

Related: 5 Worthwhile Investment Lessons I Learned From Warren Buffett

There’s much to learn from Buffett too.

On time

warren-buffett

Warren Buffett

“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.” – Warren Buffett

On risk

Warren Buffett

Warren Buffett on risk management

“I don’t look to jump over seven-foot bars: I look around for one-foot bars that I can step over.” – Warren Buffett

On change

warren-buffett

Be the change you want to see in the world

“The most important thing to do if you find yourself in a hole is to stop digging.” – Warren Buffett

Related: 5 Things Warren Buffett Does After Work

On success

Warren-Buffett

What you need to know about success

“You only have to do a very few things right in your life so long as you don’t do too many things wrong.” – Warren Buffett

On empowerment

Warren-Buffett-billionaire-successful-entrepreneur

Image Credit: Art Streiber

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” – Warren Buffett

On opportunity

Warren-Buffett-problem-solving

When looking for an opportunity…

“You do things when the opportunities come along.” – Warren Buffett

On mindset

Warren-Buffett-billionaire-close-up

Mindset management

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett

On leadership

Warren Buffett

Warren Buffett

“Someone is sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett

On motivation

Warren Buffett

Look for motivation

“Predicting rain doesn’t count. Building arks does.” – Warren Buffett

This article was originally posted here on Entrepreneur.com.

Related: 21 Inspiring Quotes About Success, Persistence And What It Means To Be An Entrepreneur

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Decrypting Cryptocurrencies

Your guide to understanding cryptocurrencies, why they are so popular and how you can use them.

Brenton Naicker

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Cryptocurrencies, like other forms of currency, provide a means of transacting goods and services. While other forms of exchange, such as fiat currencies (paper money) are issued, circulated and centrally controlled by governments and regulated by banks, cryptocurrencies are electronic and decentralised.

This means that transactions are peer-to-peer, negating the need, or additional expenses, of third party involvement such as banks or governments. The cryptocurrency market penetration will be facilitated by universal Wi-Fi and global mobile phone dispersion, enabling anyone to move money and assets, peer-to-peer, seamlessly and at almost no cost.

This clearly shows that it’s important that businesses and entrepreneurs understand this market in order to plan for the inevitable shift in the way the world transacts finances.

Related: Make The Most Of SA’s Law And Initial Coin Offering

How does a cryptocurrency transaction work?

The infrastructure supporting the cryptocurrency system is called the Blockchain, a digital ledger that stores all transaction information, and addresses three of the most obvious problems of the current money transmittance system:

  • It is decentralised, so transaction data is dispersed and not centrally controlled – this also means that the data is a lot more secure than with more traditional systems because there is not one point of entry for hackers.
  • There is no third-party involvement (ie, banks), which makes transaction fees significantly lower.
  • Transactions are in real-time and not encumbered by trading hours or bureaucracy.

Who controls cryptocurrency?

bitcoin-and-internet-accessLike conventional banking, cryptocurrency has a complex underlying structure issuing currency, recording transactions and allowing people to transact. The main difference is that an algorithm issues the currency and ledgers (not banks or governments), storing the information in blocks. Transactions match up public codes relating to user-held private passwords from their cryptocurrency Wallets.

The transaction amounts are public, but who sent the transaction is encrypted. Whoever owns the password to the Wallet owns the denoted cryptocurrency amount shown on the ledger. Even though transactions are added sequentially, many may be added to the ledger at the same time. These chains of transactions grouped in blocks make up the Blockchain.

Related: 11 Things You Need To Know About Bitcoin

Are Cryptocurrencies Here to Stay?

Cryptocurrencies, and with it the Blockchain, have unlocked value and opportunities for commerce that would’ve been hard to imagine even a few decades ago. Here are 5 reasons why Cryptocurrency is here to stay:

  1. A transaction, once confirmed, cannot be reversed or tampered with. So, they are secure and indelible.
  2. Cryptocurrency is transferred between Blockchain addresses. So, no real-world entities are associated with the accounts.
  3. Transactions are processed instantly and globally. Therefore, there is no delay in transfers.
  4. Cryptocurrency uses cryptographical processes. So, funds are locked and only available to private key owners.
  5. Generally, cryptocurrency does not require permissions from an authority.

Investing in cryptocurrencies

When looking to invest in cryptocurrencies, keep in mind that they are just like other stocks and subject to change in value based on supply and demand. In fact, since cryptocurrencies are not insured, and exposed to market fluctuations, they bear the same risks as stock markets.

Some exciting work has however been done to address these potential fluctuations while also continually optimising cryptocurrency value by companies such as Krypteum, who offer an advanced A.I enabled investment crypto coin.

Read next: 6 Rookie Investor Mistakes You Must Avoid For Profitable Investing

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