The biggest current attraction for international high-networth individuals (HNWIs) is the yield offered in the local market.
This is according to Bongani Khulu, head of family office and client engagement at Barclays Africa, who said that international investors in hard currency can borrow at a low yield (or use their own wealth that earns a low yield) and invest in the local market at a much higher yield.
“There are profitable returns to be made in this way even if one hedges out the movement of the exchange rate,” said Khulu speaking to BusinessTech.
“This yield play becomes less attractive as developed economies raise their interest rates and/or South Africa reduces its interest rates.”
“As a developing economy with significant first world attributes, there are numerous opportunities for investment both directly into the economy and through South Africa’s very well-developed, well regulated and liquid financial markets.”
Local market investments for wealthy South Africans
Khulu indicated that the opportunities are slightly different for high-networth individuals (HNWIs) currently earning and living in the country.
However, he believes that there are still several opportunities for owners of capital to make good returns in the local economy.
“It’s all about identifying those opportunities,” he said.
“The demands of a growing middle class must provide some opportunity while on the other hand, more than half of the country is living below the poverty line – an opportunity for social upliftment and socially responsible investment.”
Khulu said that government could help these individuals through investment subsidies for socially beneficial projects. This would attract capital and provide a return to both society and the owners of capital.
“Subsidies in sectors that government wished to develop (such as in manufacturing and exports) would also be a win-win for all parties.”
In contrast he believes that wealth taxes and punitive marginal tax rates would have the opposite effect.
“Overall, the greater the level of saving in the economy, the greater the pool of funds available for investment.
“The more investment there is, the greater the potential for economic growth – that means more employment opportunities, more infrastructure and ultimately greater disposal income across society – including all regular Joes.”
Personal investments for wealthy South Africans
Aside from the above local market opportunities, Khulu said that there has been a bias from South African HNWIs to externalize their funds into offshore markets.
“We have seen flows into global equity portfolios together with structured products,” he said.
“In addition clients continue to look at physical property investments offshore.”
“Investment into the classic car and art market continues to be a growing market segment within the alternatives space,” he said.
Khulu indicated that these trends would likely continue when looking at future investment opportunities for South Africa’s HNWIs.
“With the run in global equity markets, we see an opportunity for fully capital protected hard currency investments and Alternative Investment Asset classes, such as art and classic cars,” he said.