There are different types of investments available to retirement funds. Regulation 28 of the Pension Funds Act determines how much any fund may invest in any one asset class.

In March 2022, changes to Regulation 28, which sets out where retirement funds may invest, were published. The changes will allow funds to invest up to 45% (previously 40%) of their capital offshore (this includes the 10% allowance for other African countries); as well as investment in infrastructure.

In many ways, this extension of the limit for offshore assets is good news:

1. Investment managers can further diversify the portfolios in which members’ savings are invested.
2. It provides a bit more protection against the local economy’s performance.

In terms of the investment outlook for South Africa, the ongoing energy crisis (and the resulting weakening of our currency) as well as high inflation, have been causes for concern. Annual consumer inflation spiked to 7.4% in June, from 6.5% in May: this is the highest that inflation has been since May 2009 (8.0%), following the global financial crisis. It also exceeds the South African Reserve Bank's target range of between 4% to 6%, and leads to large hikes in interest rates as well.

On 21 July 2022, the South African Reserve Bank’s Monetary Policy Committee voted to hike interest rates by 75 basis points, taking the repo rate to 5.5% and the prime lending rate to 9%. This is the fifth increase in a row, and the biggest since September 2002.

According to Reserve Bank Governor Lesetja Kganyago: “While economic growth is slowing globally, inflation continues to surprise to the upside. Sustained policy accommodation, supply shortages and other restrictions have sharply increased the prices of many goods, services, and commodities”. 

Sadly, the knock-on effects do not end there. The South African Consumer Confidence index has dropped to levels lower than those recorded during the hard lockdown of 2020.

Consider the following statistics:

• While the S&P 500 returned an average of 21% per year since Feb 2012, the JSE returned 8% over the same period.
• During 2021, 25 companies delisted from the JSE and only 7 new companies joined.
• At the time of publishing, 18 companies had already delisted this year, and at least another 14 are in the process of doing so.

All of this means that offshore investments are looking far more attractive, as the returns that these investments earn are likely to be higher than local alternatives, given the underperformance of the Johannesburg Stock Exchange (JSE) compared to other global markets; and the large number of companies that are choosing to delist from the JSE.

T&Cs apply. The NMG SA Group of Companies are authorised financial services providers t/a NMG Benefits.