Global Diversification: demystifying cross-border investments from SA

Johannesburg  - As uncertainty, unpredictability and chaos reign across the world, the term "anti-fragility" has become popular when describing the phenomenon of people, businesses and sports teams (the Springboks come to mind) that don't just withstand pressure, but actually adapt and improve as a result of it.  

Anti-fragility goes beyond explaining mere resilience or robustness. It's a concept developed by Nassim Nicholas Taleb, a professor and former trader and hedge fund manager, in his book "Antifragile: Things That Gain from Disorder, " that describes systems, organisations, or entities that not only withstand shocks and stressors but actually thrive and improve because of them. 

Navigating the complexities of international investing can be daunting yet rewarding.  The South African Rand (ZAR) is known as one of the most volatile currencies in the world, ranking only slightly more stable than the Russian Rouble and the Argentinian Peso, according to IMF data.  

Kuda FX aims to demystify the process, offering insights into making informed decisions about your cross-border investment journey.

"The Rand serves as a proxy for emerging market currencies and provides relatively easy access through high liquidity, trading around the clock. Additionally, South Africa's significant exposure to commodity exports makes the ZAR highly sensitive to fluctuations in underlying commodity prices," explains Gilbert Punt, Kuda FX Chief Executive Officer. 

So, it's no surprise that with the volatility of the offshore forex market, individual investors are tempted to take advantage of the highs and lows in currency fluctuations, to try 'time the market', transferring funds offshore when the Rand is strong, expecting to earn significant returns and conversely, to limit their investment during periods when the Rand is weak.   

Yet individual investors attempting to time the Rand expose themselves to several risks.  These include incurring higher transaction fees and losses from missed opportunities in outperforming equities or currencies. Moreover, holding cash while waiting to time the currency can result in opportunity costs. 

"Over the past 25 years, it's been rare for currency movements to outperform equity returns," cautions Punt. "Emerging market currencies, including the Rand, typically thrive during "risk-on" periods, which generally coincide with strong equity performance. Trying to hedge, or time, the Rand can lead to financial disadvantages and missed investment opportunities."

The key concept often overlooked in these timing strategies is the inverse correlation between the strength or weakness of the Rand and offshore market strength or weakness and explains why the Rand is often referred to as 'the rattler' in currency circles, due to its habit of snapping back hard in the opposite direction to a big move in currency markets.

Michael Avery, a well-known financial journalist, corroborates, "anti-fragility" as apt when describing Kuda FX as a business, from their business partnership offering to helping clients respond to external factors that influence the currency market".  

Greylisting is another significant concern for South African investors and foreign exchange controls because it indicates that a country has deficiencies in its anti-money laundering (AML) and counter-terrorist financing (CTF) frameworks. 

It's a year after South Africa's was placed on the grey list, leading to increased scrutiny and regulatory hurdles for cross-border transactions. This impacts the ease and cost of investing abroad, as banks and financial institutions impose stricter due diligence processes. 

For South African investors, understanding the implications of greylisting is crucial to navigating the complexities of international investments and ensuring compliance with exchange control regulations.

At Kuda FX, we help clients navigate these complexities, ensuring we stay informed about regulatory developments, enhance our compliance measures for our clients and ensure their offshore investments align with their long-term goals, as opposed to being influenced by short-term, transient market conditions.  

By staying informed, leveraging innovative tools and talking to real people equipped with knowledge, investors can find opportunities for growth, regardless of challenging market conditions.  Remember, its strategy, and the right investment approach that is key!