Investors are dumping South Africa
South Africa faces a capital exodus as investors disinvest in the country – having sold billions of the country’s stocks and bonds by the end of last year.
By the end of 2023, Coronation Fund Managers – one of South Africa’s largest asset managers – noted the South African investment industry was seeing widespread outflows, adding that the country will likely continue to lose money over the next several years due to the poor-performing economy.
According to the firm, although total assets under management increased by 5% year-on-year at R602 billion (30 September 2022: R574 billion), the average assets under management was flat at R620 billion (30 September 2022: R621 billion).
The group noted that this represents average net outflows of 10% across the assets under management.
“This can largely be attributed to industry-wide outflows from the global emerging markets asset class, as demand declined after a decade of weak performance, and to the contracting South Africa savings pool,” the group said.
The South African Reserve Bank (SARB) noted similar concerns in its Quarterly Bulletin in December 2023.
According to the SARB, portfolio investment liability flows recorded a significantly larger outflow of R41.9 billion in the third quarter of 2023, following an outflow of R4.6 billion in the preceding quarter as non-residents sold domestic debt and equity securities.
Additionally, non-residents’ net purchases of domestic debt securities of R23.2 billion in the second quarter of 2023 switched to net sales of R23.4 billion in the third quarter, while non-residents’ net sales of domestic equity securities moderated from R27.8 billion to R18.5 billion over the same period.
The SARB said several factors contributed to these fluctuations, with concerns about persistent inflation and the potential for central banks to maintain higher interest rates for longer playing a pivotal role.
Consequently, the share of non-resident holdings in domestic government bonds dropped from an all-time high of 42.8% in March 2018 to 25.4% in October 2023.
This trend of capital flight continued in the JSE-listed shares market, with data from the bourse showing non-residents disinvested R427 billion in the country from January to September 2023.
This includes bonds of R312 billion and equities of R116 billion – equating to monthly outflows of R26 billion per month.
The SARB said the prolonged sell-off was driven by concerns over the escalating Middle East conflict, poor domestic and global economic growth, and the impact of load-shedding in South Africa.
Impact on South Africa
Investment inflows and outflows have a significant impact on the South African economy.
A research paper from the SARB’s Economic Research Department economists revealed the effect of net investment outflows on the South African economy.
In the paper, economists at SARB highlighted a strong connection between investment and economic growth, specifically in the context of South Africa’s reliance on foreign investment to offset the country’s poor savings rate.
According to the Reserve Bank’s Monetary Policy Review, South Africa witnessed substantial outflows from foreign investors during the first half of 2023.
The SARB attributed the significant outflows to local structural economic issues and geopolitical tensions caused by the country’s own actions.
South Africa’s largest asset manager, the Public Investment Corporation (PIC), has also flagged its concern about foreigners dumping local assets.
The PIC said geopolitical tensions have made investors risk-averse, leading them to sell emerging market assets, such as South African stocks and bonds.
This has caused capital to flow out of emerging markets and into safer assets, such as US dollar-denominated assets.
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