Money flooding out of South African stocks and bonds

The foreign flows out of the MSCI South Africa Index (MSCI SA) fund show that investors have lost trust in the country as a good investment destination.

The MSCI South Africa Index is designed to measure the performance of the large and mid-cap segments of the South African market.

With 34 constituents, the index covers approximately 85% of the free float-adjusted market capitalisation in South Africa.

The MSCI SA enables market participants to invest in a basket of listed companies as opposed to trading in individual shares.

Karin Richards, an investor and technical share trader, shared a chart from NinetyOne which showed the rapid foreign flows out of MSCI SA, as seen in the graph at the bottom of this article.

It revealed a rapid turn in the foreign net flows into the MSCI SA equities after former President Jacob Zuma fired Finance Minister Nhlanhla Nene on Wednesday, 9 December 2015.

He appointed parliamentary backbencher Des van Rooyen as the new Finance Minister, which caused backlash from politicians, civil society, and the markets.

The rand plummeted by 5.4% in a day, and the JSE’s banking index lost 13.5% on the news. The market and the country were clearly shaken.

Zuma reversed his decision a few days later. He replaced Van Rooyen with then Minister of Cooperative Governance and Traditional Affairs Pravin Gordhan.

However, the damage was done. The market started to view South Africa as an unstable environment which increased the risk of investments.

The MSCI SA equity chart showed a consistent downward trend since the incident. By the end of 2016, there was more money flowing out of the MSCI SA than into it.

There was a short period after Cyril Ramaphosa was elected ANC President, and he took the reigns from Zuma where there was a net inflow into the MSCI SA.

However, by mid-2018, the downward trend that started in 2016 continued, and it has persisted to this day.

The MSCI SA bonds were slower to react, but by mid-2021, it had also started to see a significant downward trend.

This year, the MSCI SA bonds experienced negative foreign net flows for the first time since the financial crisis.

The JSE’s latest data also showed a R103 billion net sale of shares from foreign traders in 2023. This was significantly higher than the R74 billion the year before.

Richards said in her view, it reflects the relentless erosion of confidence in South Africa. “After a brief Ramaphoria blip in 2018, it’s been downhill all the way,” she said.