The world’s leading financial publications have been giving SA some prominent column centimetres. And the picture painted by The Economist, the Financial Times, and the Wall Street Journal is not a pretty one.
The Economist’s cover story this week, with the South African flag shaped into a serpent, is titled "The Corruption of SA", with a lengthy cover story on state capture and an editorial in which it argues: "To avoid a dire, two-decade dynasty of dysfunction, SA’s ruling ANC should ditch the Zumas."
An Economist cover on SA is a relatively rare event. In the past several years there have been only two others. "Invictus", in December 2013, commemorated the death of Nelson Mandela. Another, just over five years ago, picked up the turning point in SA’s fortunes in the wake of the Marikana killings in 2012.
Anyone who has forgotten how far back the rot goes might read that cover, titled Cry the beloved country, in which the magazine argues that while Africa, which The Economist once labelled the hopeless continent, had begun to make bold strides, "SA, though still a treasure trove of minerals with the most sophisticated economy on the continent, is on the slide both economically and politically."
The Wall Street Journal does not usually devote that many centimetres to SA either, but it devoted a large chunk of them a couple of months ago to "Family ties, leaks and a wedding", detailing the racy story of the Guptas and their connections to the Zumas and how global firms such as KPMG and McKinsey had become ensnared. None of it will be news to local politics junkies, but it’s a summary of the whole horrid history.
Then there’s the always incisive Financial Times. Its Big Read the other day was titled "The Zuma years: the fall from grace of SA’s ANC". It talked about the explosion of alleged cronyism and corruption in the Zuma decade, as well as the splits in the party and the slide in its popularity, noting that there had been a deadening drift in policy making too.
The Financial Times tends to follow SA closely.
Its reportage on the Guptas’ approach to Mcebisi Jonas was key to opening up the state capture can of worms a couple of years ago, for example. It’s often ahead on South African corporates that are listed offshore — it’s been on top of the Steinhoff saga, for example.
To avoid a dire, two-decade dynasty of dysfunction, SA’s ruling ANC should ditch the Zumas
— The Economist
But if SA is making headlines and big reads in the media globally, how much is it influencing investor sentiment?
The answer is probably not that much, especially compared with a few years ago. In essence, the focus on SA and its woes by the international financial press is reflecting investors’ preoccupation with the story rather than necessarily shaping it.
An economist with one of the global banks says the bank has had the odd call from investors spooked by The Economist’s cover story. For the most part, however, he reckons little of the coverage would come as news to global investors because they are now so much more exposed to SA than they used to be that they are staying very close to events here.
This is the case with bond investors in particular. Foreign investors now hold almost 42% of South African government bonds, up from 36% in 2016 and from just 8.6% in 2006.
The deficit on the current account of SA’s balance of payments is smaller than it was a year or two ago, but SA still runs a deficit, spending more than it produces and investing more than it saves. That deficit needs to be financed, and SA has become ever more heavily dependent on foreign portfolio inflows to do that.
Specifically, it’s become dependent on the wash of bond inflows, which have fortunately continued — despite dire politics and state capture stories — as investors search for yield. Latest JSE figures show R50bn in net inflows to the bond market so far in 2017, up from R35bn in 2016, while the equity market has seen net outflows of R71bn.
As this column has argued before, a huge amount of money is riding on the outcome of this weekend’s ANC conference.
In the run-up, bonds have strengthened as investors have been pricing in a more favourable outcome (a Cyril Ramaphosa victory), with the yield on 10-year bonds at 9.2% to 9.3%, from a recent peak of 10.5% in the wake of the medium-term budget debacle.
The bond market rally, however, has not been as strong as the recent rally in the rand. Though foreign investors tend to see the outcome of the ANC conference in simplistic, binary terms, economists say, some are cautious about the ANC branch nomination results and they remain concerned about the prospect of a ratings downgrade and about SA’s policy trajectory.
One thing is clear though: whatever happens this weekend will prompt strong market reactions, one way or the other.
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