Category: Inside the Market

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5 Benefits of International Diversification

As savvy goal-based investors know, diversification is one of the keys to long-term portfolio success. We all know that it’s unwise to keep all our eggs in one basket, which is one reason investors often turn to alternative investments such as private equity real estate or venture capital to balance their portfolio and hedge the risk of more common investments such as stocks, bonds, and mutual funds. Yet there are more ways to think of diversification than simply the industry or type of fund you’re investing in.

Investing internationally is an excellent way to ensure that your portfolio will reap the rewards of being fully diversified on multiple levels. The data has proven many times that it’s important for people to invest in different asset classes and regions to maximize diversification and increase their portfolio’s odds of success.

Here are some of the ways your portfolio can benefit from international diversification:

1. Capitalize on Emerging Markets

Sophisticated investors who seek big potential upsides often seek out international investments—especially in emerging markets—which can be purchased at a discounted cost with measured risk. While the United States economy provides investors with numerous upsides, it remains relatively stable and mature, equating to limited growth potential. Emerging markets, on the other hand, are where all the growth is happening; investors simply can’t find these stocks in the U.S. economy.

Africa, for instance, is home to 10 of the fastest-growing cities in the world. In these locales, populations are growing, business is booming, and both domestic and international investors want a piece of the pie.

photo credit: en.rfi.fr

 

In 2010, South Africa was listed as one of the top emerging national economies alongside Brazil, Russia, India, and China, comprising the influential group known today as BRICS. Cape Town’s luxury real estate market was even recognized as the second-fastest growing on the planet. With businesses flocking to Cape Town, Johannesburg, and other high-growth South African regions, the spike in investor interest is unsurprising.

2. Avoid Turbulence at Home

One of the main benefits of international diversification is that these investments often follow different market cycles, as their performance is tied to different geo-political factors. For instance, while political pessimism in the United States may negatively impact our country’s stock market, other countries’ investments can remain unaffected. Therefore, when our economy is down, international investments can help boost portfolio performance by equalizing at-home losses with international gains.

3. Gain a Currency Boost

International diversification means more diversification in currency, which can reduce expected volatility and risk in the long term. In addition, when the exchange rate between the U.S. dollar and the currency of an international investment changes, it has the potential to increase your investment return. By investing in international real estate, you will generate cash flow in a different currency to maximize diversification. Plus, you’ll get a lot more bang for your (American) buck. For example, in early December 2018, $1 (USD) would equate to 14.35 South African rand (ZAR).

4. Get a Bigger Piece of the Pie

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Thanks to OppenheimerFunds, we know that 76% of the world’s companies valued over $1B in market cap live outside of the United States. With so many international companies making waves in both the local and global arena, it would be unwise to dismiss such a huge potential for investment growth in international markets. Plus, recent data suggests the U.S. economy will account for a smaller percentage of the world’s wealth in years to come.

5. Surpass U.S. Multinationals

photo credit: emagine.info

According to finance guru Paul A. Merriman, “U.S. multinationals don’t give [investors] much exposure to value, small-cap, small-cap value or emerging markets — every one of which can be a powerful return booster.” Therefore, if you think you have a hand in international investing simply because you have invested in U.S. multinational businesses, you’re wrong. International diversification requires investments specifically made within foreign markets.

Explore Our Unique International Investments

International Man claims that “foreign real estate is the new Swiss bank account.” Although there are a number of considerations to be made when adding international investments to your portfolio, international diversification can be an excellent way to help you achieve your long-term goals. Foreign real estate is one of the best places to get started.

To learn more about how our South African real estate investments can complement your portfolio, please subscribe.

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Durban: A Picturesque Port Town With Economic Appeal

Durban, South Africa could easily be mistaken for paradise. With an inviting subtropical climate, endless expanses of sandy beaches, and a melting pot of races and background, even a casual observer could see why the city has been ranked as the South African city with the highest quality of life for the past four years (and counting).

Yet Durban is much more than a pretty face. Situated on the east coast of South Africa, the tourist hotspot is also home to the country’s largest container handling port, making the city a key contributor to the South African economy. Currently, top global brands are competing for a stake in South Africa, and Durban is an excellent gateway for these companies looking to solidify their presence in the African market.

Durban’s Busy Port Is Vital to South African Development

In addition to being the largest container port, Durban also handles the third-largest bulk and break-bulk volume in South Africa. Despite the port’s current success, data shows that it still isn’t operating at full potential, meaning there is excellent opportunity for growth.

In a 2018 report from PwC, the auditing firm claims that the Port of Durban is inclined to “become increasingly sophisticated due to [its] air links, proximity to highway networks and the internet as well as their access to a large hinterland.” The report even likened the port to other major ports worldwide, such as New York and Los Angeles for North America.

South Africa has pursued favorable trade agreements and important economic partnerships with various countries, including the United States and China. With growing ties to many countries, ports like Durban are as important as ever in attracting foreign direct investment (FDI). As South Africa attracts more trade partnerships, ports like Durban will become an increasingly important source of revenue and employment.

Come for the Beaches, Stay for the Food

Tourism is also an important economic contributor in Durban. The city’s coastal appeal is only the start—Durban is home to a number of historical, cultural, and natural attractions, and is known for its delicious cuisine.

In 2018, Durban hosted Africa’s greatest horse race, the Vodacom Durban July (VDJ), investing millions of rand (over 10 million dollars) to support crowds of more than 50,000 people. Events like these are becoming more commonplace as Durban seeks to make it easier for domestic and international tourists to visit. A new Durban direct flight from London is the perfect example of how the city continues to deepen ties with international countries.

Durban’s Property Market Continues to Appreciate

You can’t blame people for wanting a piece of Durban’s rich economy and picturesque beaches. According to a local real estate agency, buyers are particularly drawn to areas such as Durban North, Berea, and Hillcrest. Ongoing developments and investments, continued economic growth, and a “complete restructuring” of the waterfront all point to Durban being an excellent location for real estate investors looking to capitalize on the growing South African economy.

It also comes as no surprise that many global brands have established branches in this booming port town. Unilever, PwC, Deloitte, Toyota, and Novartis all have a presence in Durban, and we expect that many companies will soon follow suit. Compared to South African cities like Johannesburg and Cape Town, Durban is relatively affordable, which makes it a great choice for businesses seeking to expand their presence in SA.

Subscribe to learn more about Durban and see how you can benefit from South Africa’s growing economy and burgeoning real estate opportunities.

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Why Fortune 500 Companies Need Johannesburg to Crack the African Market

Picture this—a vast cityscape punctuated by thousands of buildings and looming skyscrapers as far as the eye can see. No, this isn’t Hong Kong or New York—we’re talking about Johannesburg. Since gaining popularity as a gold mining settlement back in the 1800s, this South African city has remained an economic force both in South Africa and throughout the continent, maintaining its places as top contributor to the overall $326 billion GDP of the South African economy.

Johannesburg Leads South Africa in Economic Output

Known more commonly as “Joburg” or “Jozi,” Johannesburg is the largest city in South Africa and the country’s primary economic and financial hub. The bustling city is also the provincial capital of Gauteng––South Africa’s wealthiest province.

The Human Sciences Research Council notes that Joburg’s economic growth is “relatively superior” when compared to national and provincial levels. According to 2018 Gauteng Province Socio-Economic Review & Outlook, formerly high “unemployment rates have declined to levels last seen before the 2008 global economic crisis,” which bodes well for the city’s labor force.

Tourism continues to be an important economic driver for the city thanks to impressive historical attractions such as the (Nelson) Mandela House, Apartheid Museum, and Constitution Hill, among others. Like other South African cities, Johannesburg has benefitted from favorable trade acts with global leaders such as the United States. Currently, South Africa’s top trading partners include the European Union, Sub-Saharan Africa, and China.

Global Brands Have Long Betted on South Africa

A number of top global brands and companies currently compete for opportunities in South Africa, choosing cities like Johannesburg and Cape Town as their gateway into the rest of the continent. Jozi and Cape Town in particular have earned a reputation for nurturing innovation and entrepreneurship, making them likely candidates for international companies looking to expand.

From accounting firms like Deloitte, PwC, and Ernst & Young to big-name tech companies such as Microsoft, Oracle, Cisco Systems, and SAP, chances are your favorite brands have already laid claim to a piece of the Johannesburg pie. Seeing huge potential in the African market, Facebook selected Jozi for its first location on the continent back in 2015. Other big-name companies with locations in Johannesburg include Philips, Barclays, Burger King, and Unilever.

How Joburg’s Economic Opportunities Are Rocking the Real Estate Market

According to data from JLL’s Q1 2018 Market Report, Johannesburg remains the first pick for businesses who are looking to break into the South African market with a presence in the city. A stable demand for space in Jozi has increased developer interest, particularly in the Sandton, Rosebank, and Waterfall nodes.

Sandton has long been called the richest square mile in Africa, and while many businesses still select office locations downtown, Sandton remains a highly concentrated pocket of wealth that draws businesses from around the world. Overall, numbers indicate that “developer confidence is strong across the main centres with pockets of optimism and opportunities for solid investment.”

With a rich, innovative environment that stimulates economic growth, Johannesburg holds special importance for both South Africa and the continent as a whole. A blossoming corporate scene has created an abundance of wealth in the landlocked city, attracting entrepreneurs and investors from all over the world.

Subscribe to learn how you can benefit from Joburg’s economic growth through unique South Africa private equity investment opportunities.

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The Secrets Behind Cape Town’s Rich Economy

With rich biodiversity, sprawling beaches, and a vibrant cityscape, it’s easy to see how Cape Town has become a well-known tourist destination both locally and internationally. Yet the bustling port city is also an economic force to be reckoned with, boasting a rapidly growing labor force that’s driving property developments and skyrocketing rental rates.

A Bustling Coastal Hub

Cape Town has long been one of the top economic contributors to the overall $326 billion GDP of the South African economy. The coastal city is home to South Africa’s second-busiest airport, and the country’s top-rated university, the University of Cape Town. It also boasts numerous high profile tourist destinations such as Table Mountain, as well as some of the world’s largest sporting events, including the famous Cape Town Cycle Tour and the Comrades ultra-marathon.

The Port of Cape Town is the third largest container handling port in the country, with approved plans for a multibillion-rand upgrade to the facilities now set in motion. The largest three sectors in the city are wholesale and retail trade, catering, and accommodation; finance, insurance, real estate, and business services; and agriculture, forestry, and fishing.

Cape Town’s Labor Pool a True Force

Cape Town contains a labor force of around two million people, which means the city has the second largest number of people employed in South Africa and is responsible for over 61% of all employment in the Western Cape. In fact, the growing economy and high job potential has recently attracted many migrants looking for work.

The city contains four major commercial nodes and is a manufacturing base for several multinational companies such as Adidas and Johnson & Johnson. A variety of companies are headquartered here, representing a diverse array of industries that span everything from petrochemical companies to fashion designers.

Information Technology (IT) companies, including Amazon and Dimension Data, have also found great success in the bustling city, making it an important destination for South African professionals in this industry. Investors worldwide have touted Cape Town as a growing hub for both innovation and entrepreneurship, especially within the tech space.

Why Investors Love Cape Town Real Estate

According to Economic Performance Indicators, 16.4% more building plans were submitted to the City of Cape Town in the fourth quarter of 2017. And it’s easy to see why. With a staggering 4.23 million people living here, the “Mother City” is home to more people than some of America’s largest cities, including the City of Los Angeles. In fact, Cape Town is the second-most populated city in South Africa after Johannesburg.

In 2017, the city’s luxury real estate market earned recognition as the second-fastest growing in the world, outperforming a number of notable cities, including Seoul, Frankfurt, Paris, and Sydney. A combination of factors, which include increasing demand and unique supply restrictions, have contributed to the growing housing market in recent years.

According to the JLL Cape Town Office Market Report, 35,000 square meters were in the development pipeline by the end of 2017. They also noted a 6.9% vacancy rate which is down almost a percent year over year. The South African Property Owners Association believes that a sustained improvement in the office vacancy rate is dependent on the long-term strength of key economic drivers such as economic growth and business confidence. If recent investments in the city’s infrastructure and a growing interest in Cape Town’s economic potential from both domestic and international businesses is any indicator, we believe trends will remain positive for years to come.

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A Glimpse of South Africa’s Rich Economy

Cape Town, South Africa – Image courtesy of Seascape Tours

From a picturesque coastline to rolling grasslands and one of the world’s most iconic mountains, South Africa’s landscape is a sight to behold. Yet the country is rich in more than natural beauty: South Africa has a competitive, world-class economy that exports to many of the world’s leading nations. With a newly elected President who is known for his forward-thinking policies and investments, this African country has made a name for itself as a developing market to watch.

South Africa by the Numbers

Here are some key figures that explain why sophisticated investors are so intrigued by South Africa:

  • South Africa’s economy is the second largest in all of Africa and the 34th largest in the world.
  • South Africa’s debt to Gross Domestic Product (GDP) ratio averaged 39.5% from 2007 to 2017. The World Bank recommends a ratio below 60%.
  • In terms of Purchasing Power Parity (PPP), South Africa has the eighth highest per capita income in Africa.
  • South Africa’s tax revenue increased from R100 billion in 1994 to R1 trillion in 2014.
  • In 2018, one of South Africa’s main economic hubs, Cape Town, saw 8.5x growth in its luxury real estate market compared to the world’s overall property markets.

South Africa’s Top Industries & Exports

South Africa’s rich ecosystem is one of the country’s greatest assets. For instance, South Africa is the second largest exporter of fruit in the world, with oranges, apples, grapes, and pears making up the biggest share. The fruit industry has a high job-multiplier effect on the local economy that creates hundreds of thousands of jobs for South Africans, boosting the local economy through increased consumer spending.

Mineral resources are also an important industry in the South African economy, worth an estimated R20.3 trillion. In 2017, agriculture, mining, and manufacturing were the main drivers of economic growth during the third quarter, and for years South Africa has been the world’s leader in platinum output, producing over six times more than the next best country (Russia). The country also ranks highly in palladium output (2nd), gold output (3rd), coal output (6th), and wool output (9th).

Image courtesy of Pexels

Here are the top 5 economic sectors that contributed to South Africa’s GDP in Q1 2018:

  • Finance, real estate, and business services: 21.0%
  • Government services: 18.0%
  • Trade: 15.0%
  • Manufacturing: 13.0%
  • Transport: 10.0%

According to a recent report, “South Africa has sophisticated financial, legal, and telecommunications sectors and a number of global business process outsourcing (BPO) operations are located in the country.” Chemical technologies, the automotive industry, and South Africa’s ocean economy each play an important role in the country’s economic prowess.

Vehicle manufacturers such as BMW, Ford, Volkswagen, Nissan, Daimler-Chrysler, and Toyota have production plants in South Africa. At the same time, the country is a world leader in coal-based synthesis and gas-to-liquids (GTL) technologies within its prominent petrochemicals industry.

Image courtesy of Pexels

South Africa Tourism Rates Continue to Rise

With beautiful landscapes, bustling cities, and some of the highest levels of biodiversity in the world, South Africa is quickly becoming an in-demand tourist destination. Since 2006, the number of tourists has nearly doubled and is expected to reach 19.5 million individuals by the year 2022.

There are nine UNESCO World Heritage sites in South Africa alone, and in 2012, South Africa’s iconic Table Mountain was inaugurated as one of the New Seven Wonders of Nature.

Cape Town, South Africa

South Africa has also hosted a number of important sporting events, which has helped attract increasing numbers of tourists. In 2010, the region became the first African country to host the FIFA Soccer World Cup, earning it recognition as the second country in the world to host the Cricket, Rugby Union, and Soccer World Cups.

Other Fun Facts

Here are some other fun facts:

  1. Elon Musk, the founder of Tesla, SpaceX, and the Boring Company, was born in South Africa.
  2. The first MBA programme outside of the U.S. was started by the University of Pretoria in 1949.
  3. The first human-to-human heart transplant was performed by cardiac surgeon Christiaan Barnard in December 1967.
  4. South Africa has the highest commercial bungy jump in the world (710 feet).
  5. South Africa is home to the world’s largest individually timed cycle race (the Cape Argus Cycle Race), the world’s largest open water swim (the Midmar Mile), and the world’s largest ultra-marathon (the Comrades Marathon).
  6. Kruger National Park supports the greatest variety of wildlife species on the African continent.
  7. Since the 1940s, South African golfers have won more golf majors than any other nation, apart from the United States.
  8. Cape Town was named the top tourist destination in the world in the 2013 Traveler’s Choice Destinations Awards.
  9. Cape Town International was rated the best airport in Africa, according to the World Airport Awards 2012. O.R. Tambo International in Johannesburg was second, and King Shaka International in Durban came in third.

Elon Musk, the South African founder of Tesla, SpaceX, and the Boring Company. Image courtesy of FS Media.

With a rich economy, growing influence in the global arena, and extremely favorable trade agreements with the United States, South Africa has caught the attention of sophisticated goal-based investors from around the globe.

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