Foreign investors have been dumping South African assets over the past five years, with R98.1 billion being sold so far this year, threatening the country’s financial stability.
This is feedback from the Reserve Bank in its latest Financial Stability Report.
The report showed that foreign investors had been consistently selling South African government bonds and equities since 2018, with the sale of equities accelerating since 2021.
Data collected by the Reserve Bank shows the financial sector is coming under “sustained pressure resulting from non-resident investors gradually reducing their holdings of government bonds and equities”.
In particular, foreign investment in government bonds has been on a downward trend since 2018, with a sharper decline following the country’s removal from the World Government Bond Index in April 2020.
The share of bonds held by non-residents has dropped from 38.7% in May 2019 to 25.4% in October 2023.
Over the past decade, domestic banks and financial institutions have taken on a greater role in supporting the South African economy, filling the void left by foreign investors who have been reducing their holdings of local bonds and shares.
This shift has put pressure on the local financial sector to absorb an increasing supply of government debt, increasing the risk of instability from external shocks.
South African capital markets have experienced ongoing portfolio outflows, with the equities market bearing the brunt of these outflows.
Foreign investors have been pulling back from South African equities due to subdued growth forecasts, rising interest rates, increased exchange rate volatility, and unique risks like the FATF greylisting and load-shedding.
In the year to November 2023, non-residents offloaded R98.1 billion worth of domestic equities and bonds, significantly surpassing the R43.4 billion in net sales recorded during the same period in 2022.