Money flooding out of South Africa in 2023

New data from DFM Global shows huge capital outflows from South Africa’s equity and bond markets at the start of 2023.

DFM Global is an independent discretionary fund manager focusing on analytical analysis to help them build investment products.

The company’s latest research on the cumulative net foreign purchases and sales of JSE equities and South African bonds revealed a concerning trend.

From the third week in January, there has been an acceleration in sales of South African equities and bonds.

In previous years, there were positive net foreign purchases of South African shares and bonds in January and February.

2023 is different. There was a flight of foreign capital that accelerated as the year progressed.

Likely reasons for the negative net foreign purchases of South African assets include increased load-shedding, South Africa’s greylisting, and political uncertainty.

The recent trend does not bode well for South Africa which desperately requires foreign investments to bolster the economy and create jobs.

Many high-profile individuals and institutions have previously urged the government to fix structural problems to make the country more attractive to investors. Not much has come of these pleas.

As far back as November 2021, John Cairns, global markets strategist at Rand Merchant Bank, warned that South Africa was experiencing massive capital flight.

The financial investment capital leaving South Africa included foreign investors selling local assets and South Africans taking cash offshore.

The foreign-investor flight from the government bond market is a critical issue for the government to address.

Non-residents have offloaded government bonds worth R60.6 billion on a net basis over the past three years, but current-account surpluses have tempered the need for portfolio inflows.

That’s changing, and South Africa may soon need to lure back foreign money. That means a weaker currency, rising bond yields, or both.

“The country normally needs to attract sufficient capital inflows to maintain a balance of payments equilibrium,” said Mike Keenan, a fixed-income strategist at Absa.

“Now that the current account is widely expected to move back into deficit territory, South Africa may need to entice foreigners to return via a weaker rand and/or higher bond yields.”

Net foreign purchases and sales of JSE equities and South African bonds (R million)

The chart below, courtesy of DFM Global, shows the cumulative net foreign purchases and sales of JSE equities and South African bonds in R million.