Would this have proved to be a wise decision?<\/strong><\/p>\n\n\n\n Isn\u2019t it obvious? The exchange rate for $1 was R2 in 1986, yesterday it was around R15.50. A significant devaluation! Furthermore, there were several times during this period in which the rand experienced a blowout (a meaningful weakening over a short period of time).<\/strong> These periods include:<\/p>\n\n\n\n Investors might be surprised to learn that they would have been better off leaving their cash in rand<\/strong> rather than converting it to US dollars.<\/p>\n\n\n\n But how is this possible given what we highlighted above? The answer<\/strong> lies in the so-called \u201cinterest differential\u201d,<\/strong> that is, the difference between the Rand interest rate and the US dollar interest rate.<\/p>\n\n\n\n South African interest rates were on balance significantly higher than US interest rates over this period. More accurately, the interest rate difference more than compensated investors for the currency depreciation.<\/strong> Too few of us factor in the much higher interest rates in South Africa, when considering whether to have cash deposits in rand or in hard currencies such as the US dollar.<\/p>\n\n\n\n However, it goes without saying that investors were not always better<\/strong> off leaving their cash in South Africa. For example, the rand was particularly strong during the commodity boom of the mid 2000\u2019s and again after the GFC. Investors that took advantage of these periods of rand strength and converted rands into US dollars were handsomely rewarded.<\/p>\n\n\n\n Going forward, what are South African investors to do?<\/strong> Should they listen to the doomsday practitioners and rather have dollar exposure, or should they keep their rands?<\/p>\n\n\n\n At Corion, we believe that the answer to that question is not an exact science and applying the following sound investment principles is the appropriate starting point: <\/p>\n\n\n\n *Article written by Simon Du Plooy – head of strategic investment thinking at Corion Capital (an Authorised Financial Services Provider). Corion is driven by a desire to simplify the world of investing and manage a broad range.<\/p>\n\n\n\n It is January 1986. It is four months after PW Botha\u2019s Rubicon speech and South Africa is under a State of Emergency. A South African investor decides to take cash out of the country<\/strong>. The investor transfers his rand-based deposits into a US dollar bank account<\/strong>.<\/p>\n\n\n\n Would this have proved to be a wise decision?<\/strong><\/p>\n\n\n\n Isn\u2019t it obvious? The exchange rate for $1 was R2 in 1986, yesterday it was around R15.50. A significant devaluation! Furthermore, there were several times during this period in which the rand experienced a blowout (a meaningful weakening over a short period of time).<\/strong> These periods include:<\/p>\n\n\n\n Investors might be surprised to learn that they would have been better off leaving their cash in rand<\/strong> rather than converting it to US dollars.<\/p>\n\n\n\n But how is this possible given what we highlighted above? The answer<\/strong> lies in the so-called \u201cinterest differential\u201d,<\/strong> that is, the difference between the Rand interest rate and the US dollar interest rate.<\/p>\n\n\n\n South African interest rates were on balance significantly higher than US interest rates over this period. More accurately, the interest rate difference more than compensated investors for the currency depreciation.<\/strong> Too few of us factor in the much higher interest rates in South Africa, when considering whether to have cash deposits in rand or in hard currencies such as the US dollar.<\/p>\n\n\n\n However, it goes without saying that investors were not always better<\/strong> off leaving their cash in South Africa. For example, the rand was particularly strong during the commodity boom of the mid 2000\u2019s and again after the GFC. Investors that took advantage of these periods of rand strength and converted rands into US dollars were handsomely rewarded.<\/p>\n\n\n\n Going forward, what are South African investors to do?<\/strong> Should they listen to the doomsday practitioners and rather have dollar exposure, or should they keep their rands?<\/p>\n\n\n\n At Corion, we believe that the answer to that question is not an exact science and applying the following sound investment principles is the appropriate starting point: <\/p>\n\n\n\n *Article written by Simon Du Plooy – head of strategic investment thinking at Corion Capital (an Authorised Financial Services Provider). Corion is driven by a desire to simplify the world of investing and manage a broad range.<\/p>\n","protected":false},"excerpt":{"rendered":" Have investors benefited more converting their cash to US dollars or leaving their cash in rands? Simon du Plooy from Corion Capital gives his perspective. <\/p>\n","protected":false},"author":1,"featured_media":267,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"off","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[15,14,4],"tags":[37],"class_list":["post-266","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-currency","category-macro-economic","category-written","tag-investment-principles"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n
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