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ExtraVirgin April 2010
Money
Money In almost every other endeavour South Africa punches above its weight in the international arena. Our exports, both human and financial, are sought after worldwide and South African’s performances abroad are legendary.

Sport, literature, the arts, and many areas of the global business village are dominated by South African born and raised talent.

Can the same be said of South African companies listed abroad? And, more to the point, is it currently worth the schlep of purchasing SA assets listed abroad?

Historically, South African companies have pursued foreign listings - mostly dual listings - for myriad reasons. Attractions have included the ability to tap international capital markets for growth and expansion – both in SA and abroad. Also, the ability to harness and offer a home to human capital in an international business is an attraction for obvious reasons.

Reasons for investing is South African companies listed abroad have predominantly been driven by the desire to own a ‘Rand Hedge’ stock in one’s portfolio. Until fairly recently, the Rand has been considered a one way bet, with depreciation against the world’s major currencies almost a given over time. Owning a share in a company that earned hard currency is seen as a hedge against Rand depreciation. That said, it is has not proved a terribly efficient hedge over time. Company share prices are affected by more than just the variations in currency pairs – irrespective of where they are listed or from whence they derive their income.

As we have witnessed recently, the Rand can now be subject to sustained periods of strength against 1st World currencies, and the Rand ‘one way bet’ has certainly been costly. It follows that dogmatically buying ‘Rand hedge’ stocks to indirectly hedge against Rand weakness is not an optimal solution.

Of equal importance is the development and maturing of the SA capital markets – more specifically the introduction of the Rand as a freely tradable instrument on the Johannesburg Stock Exchange since 2008. The ability to efficiently, transparently and cheaply transact in the ZAR vs. all major currencies has - for the first time - levelled the playing fields for domestic investors and provided a mechanism to hedge Rand exposure purely and domestically.

Investors can now directly incur or hedge out Rand risk domestically, and thereby create USD or Euro denominated balance sheets if they wish, without having to resort to the inefficient ‘Rand hedge’ stock trade. Shares, both domestic and abroad can then be analysed and evaluated purely on their investment merits, which may contain a currently component. Crucially, however, this no longer has to be the main focus.

South African companies and the entrepreneurs that drive them can compete with the best in the world, whether listed domestically or abroad. Choosing which companies to invest in should be a function of rigorous investment analysis and discipline – and a sound appreciation of the age old risk and reward dynamic. Local is lekker in (almost) all things. In the investment realm it is no longer a given that offshore is better.

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