Money flooding out of South Africa

New data from DFM Global shows that there has been a huge outflow of capital from South Africa’s equity and bond markets.

DFM Global shared research on the cumulative net foreign purchases and sales of JSE equities and South African bonds.

The data from DFM Global revealed a significant increase in sales of local equities and bonds towards the end of last year.

At the time, the Johannesburg Stock Exchange (JSE) raised concerns about capital outflows from South Africa, which have steadily increased over the last few years.

The JSE said South Africa’s macro environment has deteriorated over the past five years, which includes global rating agencies lowering the country’s sovereign credit rating.

As a result, South Africa has either exited key global indices or become severely diluted.

JSE CEO Leila Fourie said that the rate of capital leaving the country is so significant that South Africa needs to do more to make an investment case for the country.

In November 2021, John Cairns, global markets strategist at Rand Merchant Bank, also warned that South Africa was experiencing massive capital flight.

He said a lot of financial investment capital was leaving South Africa. It includes foreign investors selling local assets and South Africans taking cash offshore.

Cairns said that part of this capital flight is due to global fundamentals, with the developed markets offering better returns and South African-specific issues.

“There is a clear shift of foreigners and locals taking money out of the country,” he said.

Not much was done to convince global investors that South Africa was a great investment destination. In fact, the local environment has deteriorated significantly since last year.

Load-shedding has increased, political instability is higher than before, unemployment reached record levels, and pressure on the state’s finances is increasing.

These local factors, combined with global macroeconomic forces, have accelerated the flight of capital out of South Africa.

Brenthurst director Magnus Heystek comments

Brenthurst director Magnus Heystek highlighted that the cumulative combined outflow of money from the JSE since January 2018 now exceeds R1 trillion.

He highlighted that the optimism when President Cyril Ramaphosa took the reins proved to be misguided.

“The Ramaphosa presidency has been a failure regarding the performance of the currency, the stock exchange, and capital flows,” Heystek said.

He added that most South Africans experienced a loss of prosperity, with the JSE failing to beat inflation over five years.

“Offshore markets have more than doubled over that period, despite the sharp declines so far this year,” he said.

The local currency has also been a poor performer. It declined from around R12.40/USD in January 2018 to more than R18/USD earlier this week.

“Local financial commentators and analysts were hopeful that the JSE would drop to levels which would attract foreign investors,” he said.

“However, offshore investors, mostly large foreign investment companies and pension funds, clearly do not share these ever-optimistic views.”

Net foreign purchases and sales of JSE equities and South African bonds

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