INVESTING
31 October 2020
ALBERT BOTHA Head: Fixed Income Portfolio Management, Ashburton Investments
I
t has become quite a challenge for South African investors to source real returns. Both local equity and property have disappointed over the last five years and now that the repo rate has dropped to 3.5%, cash in a bank account is also becoming increasingly punitive. This lack of returns in the cash and money market space due to low interest rates globally has forced investors to look for returns elsewhere, as we know that two of the primary considerations within asset allocation is risk tolerance and return requirements. The situation in the US, Japan and German markets has been further exacerbated by the anaemic returns available in their local bond markets. With the current 10-year yields in the US, Japan and Germany at 0.71%, 0.023% and -0.4767% respectively, investors in these markets went looking elsewhere for yield. Investors in South Africa are
Creeping up the curve
likely to do the same. In August, the subtle changes. STeFI Call Deposit Index returned The lower the return estimates are, 0.3% (3.61% annualised) – and the more valuable an additional 1% while this is significantly higher in yield becomes. When call rates than what one would expect in were averaging 6.5%, earning 7.5% Europe, for many local investors it on a money market portfolio may seems somewhat anaemic. not have seemed worth the extra Over the last three years, we hassle. However, if you are expecting have seen that the 3.5% from call, interest-bearing suddenly the THE LOWER THE category has grown 4.45%* annualised its assets under RETURN ESTIMATES yield earned by management the Ashburton ARE, THE MORE (AUM) significantly, Money Market increasing R273.6bn Fund in August VALUABLE AN vs the multi-asset becomes much ADDITIONAL 1% IN category up only more attractive. At YIELD BECOMES R130.7bn (ASISA). the same time, there This is even more are existing clients apparent when one considers that of in money market portfolios also that R130.7bn within the multi-asset looking for additional yield, and for category, R105.4bn was from the them the 5.93%* annualised yield that income category. Interest-bearing the Ashburton Stable Income Fund and income categories saw an AUM returned, also in August, is equally increase of R379bn. This trend is appetising. (*Source: Morningstar; likely to continue, with a couple of returns are net of fees and annualised)
This theme, where clients take one or two steps up the risk curve to help them attain their financial goals, is going to be a driving force in our local market for some time. The low-risk money market and enhanced yield funds are likely to benefit from clients moving away from cash and call accounts, while at the same time losing AUM to other portfolios that can offer higher potential returns. One of the most interesting spaces for the next 12-18 months will be the multi asset-income space, where the current potential upside relative to cash yields are the highest in over 20 years. The differential between bond, property and inflation-linked bond yields relative to cash has never been this high. The current low-rate environment is expected to continue forcing investors to change allocations and, given that, combined with a persistent demand for higher returns, investors will be creeping slowly up the risk curve.
Mauritius now even more attractive for investors
M
auritius has created a range of incentives that will effectively make it cheaper and easier than ever for investors and expatriates to live and work in the country, including reduced minimum investment limits and extending residency permits from three to 10 years. The changes, announced in the Mauritian national budget on 4 June 2020, have been designed to encourage foreign talent and investment to boost the country’s economy. They will see existing residency permits and related procedures simplified and extended, and more flexibility provided in terms of investments. Sovereign Trust consultant Ralph Wichtmann says one of the highlights of the new measures was the reduction of the minimum investment required to acquire an occupation permit as an
investor – and live in Mauritius as a non-citizen – to $50 000 (R867 000), from $100 000 (R1.7m). The validity of an occupation permit has also been extended from three to 10 years, and the spouses of occupation permit holders will no longer require a separate permit to invest or work in Mauritius. The holders of occupation permits will also be allowed to bring their parents and dependents under 24 to live in Mauritius. Work and residence permits will be combined into one document; people who have held a residence permit for three years will be allowed to apply for permanent residence; and permanent residence permits will be extended from 10 to 20 years. Wichtmann says the Mauritian government’s decision to allow occupation permit holders to buy up
to 2 100m2 of land for residential use within smart city schemes, subject to certain conditions being met, was a “major concession”. Previously, non-citizens could only buy homes in schemes specifically designated for foreign buyers. “The changes to the requirements for the various permits and acquisition of land are clear incentives to make Mauritius more attractive to prospective investors, talented individuals and expatriates wishing to base themselves in Mauritius,” says Wichtmann. South Africans looking to acquire immediate permanent residence in Mauritius by investing in a property scheme will also benefit, with the minimum purchase price being reduced from $500 000 to $375 000. This permit is valid for an initial 10 years and is renewable for as long as the investor owns the property. However, an important change that investors need to be aware of is the fact that the Mauritian Solidarity Levy will be applied to all Mauritian residents, and not just citizens, says Wichtmann. The Solidarity Levy is an additional 25% tax on qualifying
THE MAURITIAN GOVERNMENT ALSO ANNOUNCED SEVERAL CHANGES FOR COMPANIES BASED IN MAURITIUS income exceeding MUR3m per annum. However, the amount payable as a Solidarity Levy cannot be greater than 10% of the qualifying income. The Mauritian government also announced several changes for companies based in Mauritius, including an eight-year tax holiday for companies that manufacture pharmaceutical products, medical devices or high-tech products, provided the company started operating after 8 June 2017.
Ralph Wichtmann, Consultant, Sovereign Trust
WWW.MONEYMARKETING.CO.ZA 29
