How Much Offshore Exposure Should South Africans Have?

A person whose salary, business and property are tied to South Africa may have a strong reason to diversify investments internationally. A person with a near-term rand payment may still need that payment protected in rands. Both can be true within the same household. Choosing an allocation means deciding which risks each part of the money should carry.

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Count the underlying assets before choosing a percentage

There are at least three different questions hidden in the word “offshore”: where the account is held, what the fund owns and which currencies affect the value of those assets. An investment statement in rands answers none of these by itself.

A rand-denominated feeder fund can own foreign investments. Its rand value can therefore change because of both those investments and exchange rates. Allan Gray's description of its rand-denominated offshore funds makes this distinction explicitly. That is evidence about the structure, not a recommendation of its funds. A foreign-currency cash account, by contrast, gives currency exposure but does not provide the same business diversification as a global share portfolio.

Consider this invented household's financial assets. Use the same valuation date for every account and the assumed actual foreign allocation shown below, not a fund's maximum permitted allocation.

Looking only at the directly offshore account suggests 15%. Looking through the funds gives 41%. The R2.6 million difference is already invested abroad through other routes. Treating it as local could lead the household to buy substantially more foreign exposure than it intended.

Now add an assumed R5 million of net home equity and R5 million of net local business equity. Foreign financial assets are 20.5% of the resulting R20 million net asset base. The 41% and 20.5% figures are both arithmetically correct. They answer different questions. One describes an investable portfolio; the other places it beside concentrated, less readily saleable household assets.

The lower household percentage does not prove that the investment portfolio needs to double its foreign allocation. The home meets a housing need, the business valuation may be uncertain, and neither necessarily provides cash when a school account or tax bill falls due. Use the wider balance sheet to understand dependencies, then make portfolio decisions with a denominator the household can actually manage. The household-concentration question develops that broader test.

Foreign assets and currency exposure are related, but different

The table is an asset-location calculation. It is not a complete currency-risk model. A global fund may hold several currencies or hedge some exposures. A South African listed business may earn foreign revenues while also having foreign expenses, debt and local risks. Its foreign sales percentage is not a dependable exchange-rate hedge ratio for your shareholding.

Ask for the underlying asset allocation and the fund's currency or hedging policy separately. Do not count both a feeder fund and its underlying fund as additional money. Do not assume that a US-dollar reporting currency means every investment's economic exposure is to the United States.

This matters because a portfolio can be geographically broad but concentrated in the same large companies, industry or currency-sensitive business model. Moving money across a border does not, by itself, diversify what it owns. The share-count question shows how to combine overlapping holdings.

Test the rand return in both directions

For an unhedged investment measured in US dollars, a simplified rand return is:

(1 + dollar investment return) × (1 + change in rand per dollar) − 1.

“Rand per dollar” is the quoted price of a dollar. A 15% rise in that price means more rands are needed to buy a dollar. This definition avoids confusing a currency quote's movement with its reciprocal.

The following invented one-period stresses start with R1 million. They exclude conversion spreads, fees, tax, income withdrawals and hedges. They are not forecasts and do not assign probabilities.

The second row shows a profitable foreign investment losing value in rands. The third shows currency movement cushioning an investment loss without eliminating it. The final row shows both working against the rand investor. Adding the two percentage changes would give the wrong answer because it omits their interaction.

If the example household's entire 41% foreign allocation experienced the final −32% rand return while every other financial asset stayed unchanged, financial assets would fall by 13.12%, or R1.312 million. That is a deliberately simplified combined stress. The actual foreign allocation contains different assets, and the domestic portion would not necessarily be flat. Its purpose is to translate a percentage into a loss the household can judge, not to estimate portfolio risk precisely.

Currency protection is useful when it protects a liability you actually have. It is less useful as an explanation for why foreign assets must always rise in rands.

Give near-term commitments their own funding plan

Suppose the household knows it needs R600,000 for rand payments over the coming year. Its R500,000 cash balance leaves R100,000 still to fund. Increasing offshore exposure before addressing that gap could create a need to sell foreign assets at a poor time, even if the long-term allocation is sensible.

This does not make one year's spending a universal cash rule. Identify the amount, date, currency and reliability of the payment. A stable salary can cover some commitments; a planned business distribution may not be equally dependable. Avoid counting the same expected receipt as both an emergency reserve and an investment contribution.

For a known foreign-currency bill, matching the currency can remove one uncertainty, but the asset still needs to match the deadline. Foreign equities are not a cash substitute merely because the fees will also be paid abroad. A fluctuating asset and a fixed invoice can share a currency while remaining poorly matched.

Long-term retirement spending raises a different withdrawal and sequence problem. Use the offshore-exposure question for retirees for that specific decision, rather than importing an accumulation allocation into retirement unchanged.

Treat legal limits as constraints, not investment targets

SARB's institutional framework includes a 45% foreign-exposure prudential limit for specified institutions. Its 2022 circular and current institutional-investor page explain the relevant framework. This is not a recommendation that every household should hold 45% abroad, nor a universal cap on each discretionary investment account. Retirement-fund rules, institutional capacity and the particular investment structure need their own checks.

Personal transfer allowances answer another question: how a qualifying resident may move money abroad. SARB Circular 6/2026, dated 8 April 2026, increased the single discretionary allowance to R2 million per calendar year for residents who are natural persons aged 18 or older, effective on that date. It is shared across permitted uses, including investment; it is not an extra investment allowance on top of a separate travel allowance. Establish what has already been used and ask the authorised dealer to confirm the applicable transfer route and documentation.

Available transfer capacity does not establish how much should be invested. Conversely, a rand-denominated foreign fund can give exposure without a personal currency transfer. The direct-versus-feeder question owns the detailed route comparison, including administration and ownership consequences.

Turn the analysis into an allocation you can maintain

In the example, moving from 41% to an illustrative 50% of unchanged R10 million financial assets requires R900,000 of reallocation. Moving the entire R1.5 million directly offshore account somewhere else could change administration while leaving exposure unchanged. The transaction must solve the identified allocation problem.

Before adopting any target, write down what a higher foreign allocation is intended to improve. It might broaden business exposure, reduce dependence on local income or support future spending abroad. Then identify what becomes harder: rand spending stability, conversion and tax administration, access, or tolerance for foreign-market losses. A target with no stated trade-off is difficult to defend when markets reverse.

One way to expose that trade-off is to apply the same isolated stresses to candidate allocations. The table assumes either a 20% fall in the entire domestic financial portion with foreign assets flat, or the earlier 32% rand loss in the entire foreign portion with domestic assets flat. Both are invented simplifications, excluding cash flows, costs and tax; neither is an expected outcome or a worst case.

At R10 million, moving from 41% to 50% reduces the first hypothetical loss by R180,000 but increases the second by R288,000. These amounts cannot be netted into an expected benefit because no probabilities have been assigned. If the household cannot bear the second result, “more diversified internationally” is insufficient justification for the higher weight. It may need a different asset mix, more protected spending money or a smaller change. This comparison is deliberately about consequences, rather than finding an apparently optimal percentage from invented forecasts.

Choose an implementation sequence that respects cash commitments, tax consequences, account restrictions and dealing costs. Where possible, new contributions or distributions may move the allocation without selling other assets. Rebalancing is a decision to restore the agreed exposure; it need not be a prediction that the rand has reached a turning point.

The review record should contain the current look-through percentage, the chosen target or range, the reserve commitments and the condition that would justify a change. A change in a child's study plans, a business sale or retirement can warrant a fresh decision. A week of alarming exchange-rate headlines may warrant checking the plan before altering it.

ClearGauge's judgement is that a proposed offshore allocation is better assessed against the household risks it changes than against a confident forecast for South Africa or the rand. That assessment includes futures in which the rand strengthens, global markets fall and a local cash need arrives together. The examples explain those trade-offs; they do not establish a suitable allocation for any reader.

An individual allocation depends on objectives, liabilities, liquidity needs, tax circumstances, existing exposures and the capacity to bear losses. Those facts have not been assessed here. If the unresolved question is how those obligations and holdings fit together, a Financial Clarity Review provides a way to examine the household's position. Reading this article does not determine whether a particular offshore investment or transaction is appropriate.

Source review date and scope

Source review: 6 September 2026. The foreign-exposure, retirement-fund and exchange-control references serve different questions and denominators. The currency scenarios specify invented shocks, not an expected rand path. Their arithmetic cannot identify a suitable offshore percentage for a household.

For related decisions, explore how interest-rate changes affect investments, the role of equities and bonds.