Foreign investors dumped local shares at a fairly aggressive pace last week, dragging the JSE all share index down a hefty 2%, in a selloff that highlighted the influence of foreign players in the local share market.
Foreigners sold a net R17.7bn worth of local shares last week, bringing the total to R72.4bn so far in 2017, according to JSE data.
Meganomics economist Colen Garrow attributed the continuing outflows to the prospect of SA’s "suboptimal economic performance".
Statistics SA will on Tuesday release the first-quarter GDP figures, which would likely show that the country avoided a technical recession, defined as two successive quarters of economic contraction.
The equity sales contrast sharply with net bond flows, with investors chasing the high returns they offer. On Monday morning the yield on the benchmark R186 bond was at 8.44%, compared with the equivalent US 10-year note that stood at 2.17%.
Nonresidents bought a net R687m worth of local bonds last week, bringing the total bought so far in 2017 to a net R45.6bn.
Bond flows have helped cushion the rand against local political shocks, which both rating agencies and analysts have warned could harm growth prospects.
Earlier this year President Jacob Zuma sacked Pravin Gordhan as finance minister in a controversial Cabinet overhaul, which resulted in the country losing its investment-grade rating with agencies Fitch and S&P Global.
"On balance, I wouldn’t be a holder of either South African debt or equities. There is a heightened degree of political risk, and the crisis the economy is in has not yet bottomed," Garrow said.
Last week, S&P Global Ratings followed Fitch’s example on refraining from lowering SA’s sovereign credit rating deeper into subinvestment‚ or junk‚ territory.
S&P’s decision came as a relief as it has a negative outlook on SA’s sovereign credit rating‚ a warning that a credit downgrade is likely. Fitch‚ on the other hand‚ has given SA a stable outlook. Ratings agencies usually forewarn about downgrades by first lowering their outlook.
With Robert Laing
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