Money flooding into South Africa

Foreign investors have pumped R2.3 billion into South African equities over the past two weeks, signalling continued confidence in the new government formed after national elections at the end of May. 

Even more indicative of this confidence is the R17.4 billion foreigners have invested in local bonds over the past two weeks. 

There has been widespread optimism following the formation of the Government of National Unity (GNU) at the beginning of July. 

This new government is largely seen as being more business-friendly than many of its predecessors, and early signals indicate that it will accelerate the reform of key sectors. 

Many of these reforms were initiated under the previous administration and driven by Operation Vulindlela, which is housed in the National Treasury. 

However, there was a significant risk that the election outcome may scupper these reform efforts as the ANC could have formed a coalition with left-leaning parties to run the government. 

The ANC under Ramaphosa appeared to be split between working with more ideologically similar parties, such as the EFF and MK Party, or the more business-friendly DA and IFP. 

One would potentially plunge the country into another era of state capture, while the other had the potential to reignite the local economy. 

On 17 June, Ramaphosa and the ANC formed the GNU with the DA and IFP as its key partners alongside seven smaller parties. 

This marked a watershed moment for South Africa, with its future no longer reliant on the decisions of a single party for the first time. 

As a result, it was met with widespread relief, which gradually led to genuine optimism that the country was on the right track. 

In the first hundred days of the GNU, South African financial assets boomed. 

The rand strengthened by 5.8% versus the dollar, with tangible benefits coming from lower inflation and cheaper fuel prices. 

Local bonds have surged, returning 17.8%, outperforming all emerging market peers in those 100 days. 

Crucially, South African government debt surged 8.2% – indicating confidence in the new government’s ability to arrest the country’s fiscal decline. 

Importantly for South Africa, foreign investors are among the most confident, pumping billions into the local bond and equity markets. 

Over the past two weeks, foreign investors have invested R2.3 billion into local equities and R17.5 billion into South African bonds, JSE data reveals.

Year to date, the picture is still not good for equities, as foreigners have been net sellers to the tune of R93 billion. However, this is below the same period last year. 

Bonds, on the other hand, have attracted plenty of foreign capital – with investors outside of South Africa pumping R69.8 billion into local debt so far in 2024. 

This is shown in the tables below. 

Equities	Week ended 20 September	Week ended 13 September	Total
Purchases	R18,434,134	R17,070,638	R35,504,772
Sales	R17,145,854	R16,101,016	R33,246,870
Net	R1,288,280	R969,622	R2,257,902

Bonds	Week ended 20 September	Week ended 13 September	Total
Purchases	R71,267,236	R96,403,432	R167,670,668
Sales	R64,672,296	R85,544,531	R150,216,827
Net	R6,594,940	R10,858,902	R17,453,842

What is vital for South Africa is to now turn this optimism into genuine economic development on the ground, it has to turn the positive sentiment into concrete change. 

If this does not happen, the country could experience another period of Ramaphoria, during which its financial markets experience a short-lived rally and then return to the stagnation of the past decade. 

Allan Gray portfolio manager Thalia Petousis said Ramaphoria saw the 20-year bond spread versus US Treasuries decline from 725 basis points (bps) to 560bps, or roughly a 13% capital return over just three months. 

“Casting one’s eye one year forward from Ramaphoria to December 2018, yields were again wider, and the capital gain versus pre-Ramaphoria collapsed to just 3%, with the rand weaker alongside it.” 

“A lesson to be learned from this experience is that given the interwoven nature of the global economy and consumed goods, the path of interest rates can struggle to sustainably decline if global inflation misbehaves,” said Petousis.

“A more imperative takeaway from the Ramaphoria period is that political goodwill alone cannot change the path of our country.”

For this time to be different, South Africa needs capable leaders to execute their mandates effectively after many years of decline in key government departments. 

The good news is that reform, unlike during Ramaphosa’s first term, is already underway with significant progress being made in the electricity sector and logistics. 

Load-shedding has largely disappeared in 2024, with the number of cumulative hours with power cuts down 76% year-to-date compared to 2023.

South Africa has also gone six months without load-shedding – the longest streak since 2020. 

The issues at South African ports appear to have bottomed out and Transnet is undertaking a process to enable private use of several of its railway corridors.