How does the performance of the South African All Share Index compare to a composite of all the major developed markets? To give a good answer to that question one has to look through the market cycles to gain a long-term perspective.

1998-2008

South African markets performed better than world markets. Looking back at the most recent 10 years, it could be argued that investing in foreign assets relative to local assets has not been beneficial from a return per unit risk perspective. This is because over the last 10 years, emerging markets (including South Africa) have performed better than world markets at lower levels of volatility.

1988-1998

World markets outperformed South Africa. During this decade it could be argued that it would have been better to have foreign assets relative to local assets. This is because the MSCI (a composite of major developed markets) significantly outperformed South Africa (and other emerging markets) partly as a result of the emerging market crises experienced during this period. However, both of these periods look at only part of the overall cycle.

1988-2008

World markets and the South African market delivered similar returns. During this combined 20 year period, portfolios comprising 100 percent local or 100 percent MSCI would have delivered a similar return per unit risk. However, there could have been portfolio combinations of the two that would have resulted in higher return per risk than either could have delivered on their own.

Whether our market is performing better or whether it's in the doldrums, the main reason for investing offshore remains — reduced risk through diversification.

I believe that offshore assets are currently more attractive than local assets and that the Rand remains expensive at current levels. As such, from a return-risk perspective over the long term, I believe that given the current environment, it is attractive to diversify one’s portfolio with exposure to offshore assets.

Written in conjunction with Mahesh Cooper, a director at Allan Gray Limited.

Do you agree with Kabous that now is a good time to diversify with exposure to offshore assets?

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