Foreigners dumping South African stocks

Foreign investors have sold R33.3 billion worth of South African equities in the past four weeks, continuing the trend seen from the beginning of the year. 

This brings the year-to-date value of their sales up to R138.1 billion, which is over R50 billion more than at the same time last year. 

The large-scale selling of local equities is despite the renewed optimism regarding South Africa’s economy and investor returns following the formation of the Government of National Unity (GNU) in June 2024. 

After its formation, foreign investors pumped money into South African equities and bonds, with local investors joining in. 

However, the GNU’s first year in office has been plagued with drama and instability, with the ANC and DA being uncomfortable bedfellows. 

Emblematic of this was the Budget saga that played out earlier this year, with the Finance Minister only getting parliamentary support for the third iteration. 

This translated into foreign investors selling out of local equities throughout the first quarter of 2025, with the Reserve Bank recording R80.4 billion worth of sales in the first three months of the year. 

Foreign investors continued selling throughout April and May, getting rid of R31.1 billion worth of domestic-listed shares in those two months. 

The sales ratcheted up a notch following President Ramaphosa’s firing of DA deputy minister Andrew Whitfield for not getting approval to travel overseas in February. 

Old Mutual chief investment strategist Izak Odendaal likened this to a dense fog settling over the South African political landscape, with brinkmanship among GNU partners not sitting well with investors. 

Although the party indicated that it would not leave the GNU as it is not in the best interest of South Africa, it will pull out of Ramaphosa’s planned National Dialogue.

More importantly, the relationship between the ANC and the DA, the two largest parties in the governing coalition, took another hit. 

Throughout this political drama, foreign investors were major sellers of South African equities, dumping R6.7 billion worth during the week of Whitfield’s firing. 

The table below shows the purchases and sales of JSE-listed equities by foreign investors over the past four weeks alongside the year-to-date totals. 

Bonds holding their own

The dumping of local equities stands in stark contrast to foreign investors’ attitude to South African bonds, with them being net purchasers of R60 billion worth of the asset. 

This has been driven by the elevated returns offered by domestic bonds compared to developed economies and the country’s declining inflation expectations. 

Non-residents recorded net purchases of JSE-listed bonds of R16.3 billion in the first quarter of 2025 following net sales of R10.2 billion in the fourth quarter of 2024, according to JSE data.

However, non-residents reduced their holdings of local bonds by R4.8 billion in April and May 2025, with the cumulative net purchases of bonds by non-residents of R11.5 billion in the first five months of 2025. 

The net purchases of domestic bonds were supported by elevated returns from higher domestic bond yields compared to advanced economies, the Reserve Bank said in its latest Quarterly Bulletin.  

This was boosted by improved sentiment in response to the announcement that the proposed increase in South Africa’s VAT rate would not be implemented. 

More recently, interest in South African bonds has gained momentum due to the increased likelihood of the country moving towards a lower inflation target. 

This has been coupled with sustained low inflation and declining expectations from analysts regarding price increases in the future. 

“We see scope for further rallies in longer-dated nominal bonds,” Nolan Wapenaar, chief investment officer at Anchor Capital, told Bloomberg. 

“In recent months, we have gradually increased duration across many of our domestic fixed-income portfolios through careful bond selection, taking advantage of lower inflation expectations and curve steepness.”

Wapenaar said Anchor sees particular value in the 10-year to 15-year section of the curve. Yields on 2035 securities have tumbled more than 80 basis points since May, when talk of an imminent change to the inflation target first surfaced, to a five-year low last week.

Reserve Bank Governor Lesetja Kganyago said this week that a review of the inflation target is close to completion.

The country’s inflation rate was steady at 2.8% in May and has been hovering near or below the floor of the target range for eight consecutive months, making it the perfect time to ‘lock in’ lower inflation.