Investors flooding out of South Africa

Foreign and local investors are flooding out of South Africa, with the country experiencing investment outflows every year since 2017 and over R100 billion worth of local equities having been dumped so far this year. 

This was revealed in the South African Reserve Bank’s (SARB) Monetary Policy Review, a bi-annual report detailing the economic data it uses to inform its monetary policy decisions. 

The Reserve Bank said South Africa experienced significant outflows from foreign investors in the first half of 2023. 

This resulted in the rand reaching its lowest-ever exchange to the dollar of R19.80 on 25 May. 

It attributed the significant outflows to local structural economic issues and geopolitical tensions of the country’s own making. 

In particular, the SARB highlighted intensified load-shedding, deteriorating logistics, the Lady R controversy, and general economic underperformance. 

Thankfully, by the middle of the year, this outflow eased to be more in line with the average outflows seen over the last five years. 

2017 was the last year that South Africa experienced a net inflow into South African equities, with each year since seeing at least R100 billion in outflows. 

Despite sustained outflows, South African equities have largely tracked the performance of peer markets during the year. 

The MSCI South Africa Index nonetheless dipped sharply in the third quarter of 2023, losing close to 5.0% compared with losses of just under 2.0% for the broad MSCI Emerging Market benchmark. 

South Africa experienced R74 billion in equity outflows last year, with the selloff in 2023 already surpassing that level in the first nine months of the year. 

The outflow is even worse when considering the selloff of South African government bonds in 2023. 

While investors have been net sellers of local equities since 2017, many have continued to invest in local bonds as they offer attractive returns for minimal risk. 

However, investors have also started to dump South African government bonds due to the government’s deteriorating finances and growing concerns about its ability to honour its debt payments. 

The MSCI SA bonds index, by mid-2021, started to see a significant downward trend from relatively high levels of investment. 

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

Karin Richards, an investor and technical share trader, shared a chart from NinetyOne which showed the rapid foreign flows out of MSCI South Africa. 

Richards said this 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.