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With Brexit in October & a potential Moody's downgrade in November - should you take money offshore in preparation?

September 5, 2019

We should be used to uncertainty by now, yet still dinner parties, networking events, and certainly our calls with clients centre around what’s happening with the Rand, what will happen if Moody’s downgrade us, and has the UK gone mad? All justified concerns.

 

 

 

A lack of significant reforms led to South Africa being downgraded to junk status by both Standard & Poor’s and Fitch in April 2017. Only Moody’s has kept South Africa one notch above junk status. But for how long? 

 

Up to now, Moody's said it had been encouraged by our government's efforts to stabilise the economy and promote growth and there was consensus that it would be devastating for Moody's to change its mind.

 

However, the economic and political woes continue, and there is clearly a storm brewing;  ANC bickering resulting in Cyrils forced political paralysis is likely to result in economic and social instability, and, sadly, a Moody’s downgrade in November. If Moodys does do the inevitable, SA will be facing an IMF bailout.  Whilst this is likely what the country needs, it is going to have a serious impact on the Rand for some time. 

At the same time, across the pond, Brexit continues to dominate the UK, with Boris’ recent appointment centre stage.  Coined by some, as Trump’s love child (yes the hair bears a striking resemblance), we can’t help but wonder what this means for investing there.  

 

What is generally agreed, and backed by the analysts is that the British pound has been devalued during this time of UK uncertainty. 

Devaluation is estimated at as much as 20%.  In fact, The pound hit a 10-year low last month  over fears of a no-deal Brexit, but what will happen to the pound as Britain faces Brexit and Boris?

 

According to our FX expert, Andrew Rissik, MD of Sable International, there seems to be more positivity and clarity around Brexit Boris is being strong and playing hardball - With Europe returning from their holidays, the heat is on and all are willing to negotiate now.  In his opinion, there coming 8 weeks will be rather uncertain, but then pound might well strengthen.  

 

So what does this mean for those thinking to invest in UK property?  Should you wait and see? This is a strategy most end up executing. However, our advice would be to get some funds offshore, even if in batches, to hedge and minimise any rollercoaster.  If the plan is to buy offshore in the UK, there has never been a better time in term of the value of the GBP. Of course, you need to purchase carefully. Only pockets of the UK are yielding well.  If you feel ready to pull the trigger, you could well benefit 3 fold; from high yields (upto 7.5%), growth (in some areas predicted at 10%pa, and a currency win (If GBP regains its 20%). What if you;re not ready?  Get some funds offshore in case, utilise your discretionary allowance, and start researching your options. At least then you’re in a position to execute when the right investment comes along. 

 

 

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