Do foreigners love or hate SA?
Locals attach much importance to this, and that’s not restricted to the current controversies about whether South Africans, at least those who have taken their Covid-19 vaccine, should be able to travel freely to the UK. For now at least, the UK says not, leaving South Africans perplexed as to why they get different treatment from Bangladeshis, Pakistanis or Kenyans.
It’s extra grating that the exclusion is based on dodgy science, relying on a nine-month old story about an “SA variant”, which is now called Beta and could just as easily have originated in the UK, and the belief that it might sidestep vaccines.
National pride isn’t the only reason that these perceptions matter, even though it definitely plays a role. What really matters is the economic impact, and the damage it will do to millions of people in SA who depend on tourism to make a living, whether they are running a five-star hotel on the Waterfront in Cape Town or a stall at God’s Window in Mpumalanga.
Another statistic that makes a huge difference to the nation’s psyche, at least among those who watch markets, is the level of confidence people with money on other shores have in SA assets. Are they pulling out or giving us a vote of confidence by showing that this is a safe place to invest in?
For a country like SA, which has relatively low levels of domestic savings and has traditionally run deficits on its current account, the broadest measure of trade in goods and services, its ability to attract foreign capital is key to funding its consumption and investment. This happens if others lend it their excess savings, mainly through portfolio flows into its bonds and stock markets.
On this score, data from the JSE that shows whether foreigners are net sellers of SA’s bonds should be a good indicator of sentiment, which is why newswire agencies such as Bloomberg and Reuters publish the weekly numbers. The problem is that the way it’s reported is less than clear.
Given SA’s downgrade in 2020 and the ravages of Covid-19 that have led to historically high budget deficits, it didn’t seem unreasonable to see data every week showing that investors were consistently selling more SA bonds than those they were buying — to the tune of billions of rand.
That has been confirmed in many research reports from reputable economists that landed in our inboxes. Organisations such as the Institute of International Finance have consistently released data showing outflows from SA’s bond markets since February 2020, when it was clear that the country was going to lose its last remaining investment-grade rating, and before Covid-19 played havoc with SA’s markets.
So it came as something of a surprise when JSE CEO Leila Fourie told the Business Day Spotlight podcast that foreigners had bought a net R45bn of local bonds in the year to date. A surprise because the JSE’s published weekly report suggested they had done the opposite, offloading close to R60bn. The most recent data shows net sales have reached R71bn.
The difference has left economists perplexed as to how one judges the true reflection of investor perceptions of SA, and they may find the exchange’s explanation less than satisfactory. Here’s a short summary that will hopefully explain without too much jargon.
There’s more than one report, with one freely available, the other not. And this is where the confusion comes in — having data sets with different conclusions but with neither one, strictly speaking, incorrect. The report that is published regularly and on which economists and strategists base their conclusion reflects trades that are captured by members at the point of trade, and they then declare the resident status of clients.
But much can happen from this point to when the transactions are settled and cash changes hands, which most of the time happens three days later, something mostly true for trades that involve foreign players.
Some may fail altogether and others may be rolled over to a different date, and this may correspond with the end of the week or month, so they may be reflected in the “wrong” week or month. The existence of another report showing deals that have been actually settled may explain the apparent contradiction in the numbers, but this is not as freely available.
According to Mark Randall, director of information services at the JSE, the different sets are complementary and “may speak to different narratives at any one point”. He points out that daily trade data is an important indicator of liquidity.
“Settled data on the other hand will — while lagging by the settlement period — give a good indication of shifting position numbers as pertaining to non-residents,” he said. “This is valuable in determining the relative interest in SA bonds between local investors and foreign investors.”
The problem is that one is still left with data that up to September 21 showed there had been either R27.2bn in net purchases by foreigners this year or net sales of R79.5bn, depending on which one you were looking at.
An economist who has written reports citing data showing huge outflows from SA, said change could not come soon enough, arguing that the JSE should “give the correct data to everyone so we can all have the same figures”.
And since people can make life-changing decisions, not just whether to sell bonds, based on the data, it’s hard to argue against that.
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