From Gary Booysen on the top floor,

Dear Money Morning Reader,

With the South African rand gaining almost 29% against the US dollar, 19% against the euro and 18% against the pound sterling, the local currency is turning out to be one of the world’s strongest currencies for the year to date. Many potential investors are asking if it’s a good time to increase international exposure.

Dr Prieur du Plessis, Plexus group chairman, councils against trying to make a quick buck by timing the bottom or banking on the rand suddenly weakening. This isn’t the way to generate good solid returns. If you’re going to try to make money off the strong rand, now is the time to apply rand cost averaging.
Even better: Get some of that money offshore.

While some market participants predict that the rand may strengthen to below the R7 level, Du Plessis believes international diversification is imperative for a sound investment portfolio. “This is especially true if most of your assets are invested in an emerging market such as South Africa.”

According to Du Plessis, the results of the latest World Survey of Business Confidence by Moody’s Economy.com indicate that the global economic recovery has begun. Du Plessis says, “Business strongly expects conditions to further improve later this year and early next year. Sentiment is strongest in Asia and South America and among business service firms. European businesses and those that work in government are the least upbeat.”

Invest in companies, not economies

The US economy faces an uphill struggle, particularly compared to its more nimble emerging market rivals, says Jodie Clark, MoneyWeek's UK’s editor. With unemployment still rising and the banking system and housing market vulnerable, US growth is likely to remain sluggish for years. So surely it’s the last place to invest in right now? But it’s the oldest most sacred tenant of value investing. Buy low, sell high. And right now, the US is about as low as they come.

One place to tuck away a couple of super powerful rand is with Felix Wintle, manager of the Neptune US Opportunities Fund. “We’re investing in companies, not in GDP,” he argues. Consider looking at the companies that led the world into a global era of capitalism. His approach has certainly paid off. Over five years, the fund is up 90% against a 5% rise for the S&P500.

“An alumni of the City of London School, Wintle intends to invest the fund’s 9% cash position over the next few weeks, as he expects the rally to continue into the fourth quarter,” says Clarke. This is not to say he’s overly adventurous. When the world threw itself into reverse in 2007, he didn’t have a single bank in his portfolio.  This fund is heavily invested in US health care. “President Obama’s reforms are nowhere near as damaging to the industry as was feared.”

“History has shown that outperforming the S&P 500 over the long-term is extremely difficult. The Neptune US Opportunities Fund has managed this over the past five years,” says Hargreaves Lansdowne. This fund is one that’ll continue to impress in the future.

If you’re looking to use up a little of the R2 million investment allowance granted to South African taxpayers, this isn’t a bad way to go. If you’ve already tapped out that avenue, you can approach a financial institution and ‘purchase’ foreign investment capacity from them at a fee. They will apply to remit the funds offshore on your behalf and you can invest in offshore funds of your choice. When you sell the investment, the proceeds will have to be remitted to South Africa.

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Turning to the markets...

The JSE all share index gained 1.5% yesterday. The gold mining index slipped 0.74%. Resources added 2%. Banks and financials collected 3.7% and 2.31% respectively. Industrials added 0.57% and the platinum mining index slumped 1.75%.

London's FTSE100 climbed 1.98%. The Dow Jones grew 1.47% and the Nasdaq closed 1.51% up.

Tokyo's Nikkei increased 1.75%. Hong Kong's Hang Seng closed 0.89% up.

Brent crude is currently trading at $74.66 per barrel.

Spot gold's trading at $1,064.14 and platinum was last quoted at $1,361.50.

And here's how the rand is performing against the major currencies:
R/$7.24
R/₤11.62
R/€10.82

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