Why now is the time to invest offshore?

This is the latest RMB’s currency outlook for the next year or so:

Some major positives have emerged over the past month that justifies some of the ZAR’s sharp gains. In particular:

- The proposed MTN Bharti deal could bring in US$4bn of net inflows.
- The SARB has allowed more ZAR appreciation than we thought they would.
- The current account deficit is contracting more sharply than expected.

There are nevertheless reasons to be cautious of the local unit, notably:

- The degree of risk-taking seems overdone given the uncertainty over the timing and extent of a global economic recovery.
- After the recent rally the ZAR is probably already overvalued.
- While the underlying balance of payments position has improved, the longer-term issues of funding the current account deficit persist.
- We finally appear to be reaching a level where the SARB will act to restrict further ZAR gains.
- Comparisons with the ZAR rally from 2002 to 2005 are misguided given that circumstances are so different.

Reflecting the above, we maintain a bearish medium-term view of the ZAR but have adjusted our forecasts to account for the recent positives.

We now expect USD/ZAR to end the year at 9.00, with a trading range of 7.50 – 10.00, and to end 2010 at 10.00.

KEY ISSUES AND EVENTS IN THE MONTH AHEAD:

- Will the global risk-taking rally and weakness in the USD continue?
- The reserve figures this Friday will provide further indication of what the SARB’s policy is for the ZAR.
- Will the SARB buy USD in the month if the ZAR continues to appreciate?
- The SARB Quarterly Bulletin on 18 June will provide detailed balance of payments data.
- The SARB is likely to cut interest rates by 50bp on 25 June, indicating that we are at the end of the rate cutting cycle.
- Any further details on the MTN deal and the proposed US$5bn loan from the World Bank to Eskom.

So, in short, if you are considering offshore investing, the time to do so is now!

If you want more information about Offshore Investment IPS would suggest going to www.ipsinvest.com to look at our great opportunities.