Investing is never done in a vacuum. Geopolitical tensions, economic cycles, inflation, and shifting market valuations all play a role in shaping outcomes. Investors face an unusually complex environment: elevated U.S. market valuations, ongoing wars in Europe and the Middle East, and persistent low growth in South Africa.
If you are investing for the long term—five years or more—how should you position your portfolio? Should you keep your capital local, move it offshore, or find the right balance between both?
A 5+ year investment horizon gives you a valuable asset: time. This allows you to ride out short-term volatility, take advantage of compounding, and recover from temporary market dips. But it also means you need to be selective about where you place your money. Over the long term, asset allocation and geographic diversification play a far greater role in returns than short-term timing or tactical trades.
The Case for Offshore Investing
Many investors look offshore to access:
- Global innovation and growth opportunities, especially in technology, healthcare, and consumer sectors
- Currency diversification and protection against rand depreciation
- Larger, more liquid capital markets
- Access to regions with better structural economic tailwinds
Over the past 15 years, the S&P 500 has delivered 13.0% p.a., largely driven by strong earnings growth, expanding margins, and increasing valuations. However, much of that performance may already be priced in. Today, U.S. equity valuations are high—particularly in large-cap tech and AI-linked companies—raising the risk of lower future returns. Compounding this are geopolitical risks, such as the Russia-Ukraine conflict and instability in the Middle East. While these may not derail global markets entirely, they can increase volatility, impact energy prices, and affect investor sentiment.
That said, many developed and emerging markets outside of the U.S. are more attractively priced, with reasonable earnings expectations and less frothy valuations. Europe, Asia, and selected emerging markets may offer better relative value, even if geopolitical risks remain.
The Case for Local Investing
South Africa has its own challenges: low GDP growth, infrastructure bottlenecks, policy uncertainty, and constrained consumer demand. Yet there are reasons not to write off local markets:
- Attractive valuations: Many South African equities are trading at depressed levels, pricing in a great deal of pessimism.
- Strong local companies: Several JSE-listed companies generate the bulk of their earnings offshore or are diversified across multiple markets.
- Fixed income appeal: SA bonds are offering real yields above inflation, which are hard to find globally. Even after a strong run in early 2024, local bonds remain an attractive option for income and capital growth over a 5+ year horizon.
- Currency opportunity: If the rand strengthens from oversold levels, local investors with rand-denominated assets may benefit.
However, relying solely on South African assets limits your exposure to faster-growing global economies and sectors that aren’t well-represented locally (e.g., advanced technology, global healthcare).
So, Where Should You Invest?
The answer lies in balance and diversification. With a long-term view, investors should consider:
- A core offshore equity allocation – to tap into global innovation, growth sectors, and diversify political and currency risk.
- Selective local equity exposure – especially in high-quality businesses with offshore earnings and strong balance sheets.
- South African bonds – to provide real yield and downside protection, especially in a high-interest rate environment.
- Multi-asset or global balanced funds – for built-in diversification across geographies, asset classes, and currencies.
Final Thoughts: Think Globally, Stay Grounded Locally
In a world marked by complexity—war, inflation, political uncertainty—it’s tempting to retreat to what feels “safe.” But history shows that staying diversified and thinking long-term is a far more resilient strategy. Investing both locally and abroad allows you to benefit from global growth while remaining anchored in assets you understand well. The goal is not to choose one over the other, but to build a portfolio that can weather uncertainty and deliver real returns over time.
If you are not sure how to strike that balance, come and speak to me – a qualified financial adviser. The right mix depends on your goals, risk appetite, and life stage—but the opportunity lies in staying invested and staying diversified.
Written by Sigrid
