PIC concerned about foreign investors dumping South African assets

Foreign investors have been net sellers of South African bonds and stocks since 2016, with R299 billion already sold in the first seven months of 2023. 

This was revealed in the Public Investment Corporation’s (PIC) annual report, which included research done by the PIC using Bloomberg and JSE data on foreign investors’ sales of local assets. 

The PIC said that geopolitical tensions have made investors risk-averse, leading them to sell emerging market assets, such as South African stocks and bonds. 

This has caused capital to flow out of emerging markets and into safer assets, such as US dollar-denominated assets.

Several factors listed in the PIC’s annual report have contributed to the recent capital outflows from South Africa, including:

• Geopolitical tensions
• Electricity supply disruptions
• High unemployment
• Crime and corruption
• High interest rates in developed markets

High interest rates in developed markets have made these countries even more attractive to investors during times of risk aversion. 

This has led to a reallocation of capital away from emerging markets, resulting in weaker currencies and higher bond yields in emerging markets.

Commodity-exporting emerging markets, such as South Africa, Brazil, and Chile, have benefited from rising commodity prices. However, commodity prices are now slowing on the back of lower global growth.

Since the start of the pandemic, foreign investors have been selling large quantities of South African bonds and risk assets. 

These cumulative flows have not reversed over the past five years. Even though South African bonds still offer some of the world’s best bond yields, foreign investors have largely been selling equities.

From January 1 to July 31, 2023, foreign investors sold a cumulative R299 billion worth of South African risk assets and bonds. 

The PIC said South Africa’s economy depends heavily on trade with other countries and foreign investment. 

South Africa faces several external challenges, including a large trade deficit, falling commodity prices, and a weak rand. 

These challenges are making it difficult for South Africa to stimulate economic activity.

The PIC said the government needs to take decisive action to address these challenges to boost economic growth, create jobs, and reverse the trend of slow growth and rising unemployment.