South African stocks are the cheapest on record relative to their emerging-market peers, but they\u2019re still not cheap enough for foreign investors.<\/p>\n
Offshore players have been net sellers of South African equities for 11 straight days through Tuesday, the longest streak of outflows in six months, according to JSE.<\/p>\n
They have sold a net 25.4 billion rand ($1.8 billion) in the year to date, the largest outflow for the corresponding period since Bloomberg started compiling the data in 1999.<\/p>\n
Johannesburg\u2019s benchmark stock gauge is the cheapest relative to the MSCI Emerging Markets Index since Bloomberg started tracking the data, based on estimated price-earnings ratios, a key attraction for value buyers.<\/p>\n
But stagnant economic growth, worries over electricity supplies and the volatile rand have deterred potential investors in Africa\u2019s biggest equity market, with a capitalisation of about $473 billion.<\/p>\n
“Chronic economic growth underperformance has exerted a drag on the JSE,” said Jana van Deventer, a Johannesburg-based economist at ETM Analytics.<\/p>\n
“The fact that foreigners are rotating out of the stock market suggests that the international investor community is not convinced that the growth-enhancing reforms introduced thus far will suffice to kick start the domestic economy.”<\/p>\n
Inflows to the country\u2019s bond market of R10 billion this year have partly offset the stock outflows. South Africa relies on portfolio inflows to fund a current-account deficit that swelled to 3.5% of gross domestic product in the third quarter of last year.<\/p>\n
The country\u2019s stock market is missing out on the ‘wall of money’ heading into emerging markets due to a dovish Federal reserve, thawing trade tensions and easing concerns over global growth, according to the Institute of International Finance.<\/p>\n