SA is poised for record equity outflows, reflecting perceptions by foreign investors of a country that has been battling to grow the economy over the past decade.
Foreign investors have been consistent net sellers of SA shares since 2016, despite the promise of a new dawn that became a mantra during the early days of President Cyril Ramaphosa’s term in office. This followed the so-called nine wasted years under his predecessor Jacob Zuma, in which corruption became rife and economic growth faltered.
Foreigners have sold a net R139.53bn worth of local shares so far in 2021, the most on record, after outflows of R125.59bn in 2020.
"A persistent negative macroeconomic environment, which seems to worsen over the years, has led foreign investors to sell SA equities overall," said Langa Manqele, head of equity and equity derivatives at the JSE.
"Corporate earnings [growth in profits] have been depressed for some time, say between 2016 and 2018, especially when you look at the mining sector earnings decline around this period — a picture that turned around early in 2020."
The JSE all-share index is up 41% over a five-year period, compared to a 105% gain by the US’s S&P 500 over the same period. Brazil’s main share market rocketed 81%.
SA is still rated as a sub-investment grade by ratings agencies, including S&P Global Ratings and Moody’s Investors Service, despite signs of progress in improving fiscal finances.
The JSE, which is the biggest bourse in Africa with a total market capitalisation of R20-trillion, has also battled to attract new listings while numerous small to medium-sized companies in particular have delisted from the exchange.
Abdul Oldey, a portfolio manager at Kagiso Asset Management, said foreigners generally have a more limited
exposure to the local market relative to their total portfolios.
This means that when they decide to implement a risk-off approach, they quickly sell out of emerging-market equities as a whole, and may sell out of SA specifically.
"Conversely, local funds are, by definition, more invested in our local market. Local savings and investments are naturally invested back into our local market. Those managers who may have a negative view on SA would likely already be using their offshore allowance to its full capacity, which limits their ability to meaningfully allocate more of their assets outside SA," Oldey said.
But shareholder activist and CEO of Opportune Investments Chris Logan said corruption has dented SA’s image.
"Unlike the Mandela era, when the world saw us pursuing a positive path, foreigners increasingly see us having reached the end of the road after two decades of corruption and mismanagement," Logan said.
"The highly influential and conservative The Economist [magazine] recently spelt it out in stark terms in an editorial on SA where they applied hard-hitting terms like crony capitalism to the SA situation. Whether it’s the unemployment rate or the ever-shrinking JSE, the facts are, by and large, confirming SA as an unattractive investment destination. Unfortunately, we cannot wish this away."
However, despite a weak economy, the total market value of the JSE has grown to R20-trillion from R12.68-trillion in 2018, driven by a handful of big industrial and mining shares, which generate the bulk of their revenue outside SA.
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