Three Weeks of Conflict Have Tested the Logic Behind a Rand-Only Portfolio

By Harry Scherzer, CEO of Future Forex

In January, South Africa hosted joint naval exercises off Cape Town with key BRICS Plus members China, Russia and Iran, startling investors. Five weeks later, the Middle East conflict triggered a massive sell-off of the rand, as investors fled the currency, wary of South Africa’s diplomatic and military closeness to a now-warring BRICS partner.

Now, with the blockade of the Strait of Hormuz, through which a fifth of global oil moves, markets are spooked, with the price of Brent crude almost doubling to over $100 a barrel. For South Africa, a net fuel importer, the blow is two-fold, because the spike isn’t just felt at the pump; it is driving up war-risk insurance and freight costs, causing a surge in food and transport prices that threatens to ignite a new cycle of runaway inflation.

Trading at roughly R15.92 to the dollar on Friday, 28 February, the rand climbed to R16.12 by Monday and hit R16.94 by 13 March. In a single week, Moneyweb reported that foreign investors had pulled R41.3 billion from South African government bonds, the largest outflow since at least 2019 according to JSE settlement data.

Lacking offshore exposure leaves your portfolio without a buffer, forcing you to absorb the full impact of local market volatility.

That changed quickly

Only three months ago, South Africa was riding a wave of optimism. S&P Global had upgraded the country’s credit rating in November 2025 to BB, after 16 years of decline, bolstered by the strongest GDP growth since 2022 (1.1%). As recently as last month, with inflation sitting at 3%, the market expected significant rate cuts.

The war has upended most of that, with warnings that the conflict could become a global supply-side shock that forces the Reserve Bank to reverse course on rate cuts. April’s fuel price increase is expected to be the highest ever implemented in a single month, with inflation potentially jumping from 3.2% to 4.5% in one go. Efficient Group chief economist Dawie Roodt told Business Day that a further credit upgrade this year is now unlikely. Treasury’s 1.6% growth forecast, tabled last month, is effectively irrelevant. And Morgan Stanley believes rates could stay on hold for most of 2026, with cuts delayed until the end of the year, at the earliest.

South Africa’s credit upgrade and five consecutive quarters of growth are important and positive developments, which haven’t been undone, but none of it matters much while the oil price is climbing and the war has no end date.

Local is very limited

The JSE’s total equity market capitalisation is roughly R24.4 trillion ($1.45 trillion), compared to global equity markets worth more than $100 trillion. If your entire portfolio rests on one exchange in one currency, you are going all-in on a single emerging-market economy – one that imports 90% of its crude oil during the largest oil supply disruption in decades.

The rand also works against you. It weakens at roughly 5-6% a year against the dollar over the long run, which erodes between 33% and 40% of your purchasing power over a decade. That hurts, particularly when university fees, travel, or retirement spending carry a dollar, euro, or pound component.

The Budget offers a reprieve

This year’s Budget doubled the Single Discretionary Allowance from R1 million to R2 million per adult per calendar year, offering individuals enhanced flexibility to send funds abroad before a South African Revenue Service (SARS) tax clearance is required. This change is expected to come into effect over the next several weeks.

The Foreign Investment Allowance – which requires an Approval of International Transfer (AIT) from SARS – is set to remain at R10 million per individual, bringing the total annual offshore allowance to R12 million.

What to do

Investors have no control over the war and the oil price, but they do have control over how their portfolio’s positioning. For those heavily weighted toward the JSE, that likely means overexposure to mining and financials, with offshore opportunities in technology, healthcare, international infrastructure, and developed-market bonds.

The doubled R2 million SDA makes regular offshore transfers simpler. Moving in tranches smoothes out currency volatility far more effectively than trying to time the rand at its weakest.

Local exposure still has a place, and selling domestic assets into a panic is rarely a good trade.

What to watch

The Reserve Bank next rate decision will be made on 27 March. Many economists expect a hold at 6.75%, because the internal economy is doing better although the external shocks are forcing the Reserve Bank to consider the geopolitical “risk premium”.

Over the past three weeks of war in the Middle East, South African investors have seen how quickly a favourable local outlook can be overtaken by events nobody predicted. But they are not powerless. The allowances to move money offshore are already in place, and investors who build that exposure between crises rather than during them tend to come out better on the other side.

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Author: Anele Motha from Irvine Partners on behalf of Future Forex.

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