Coronation Fund Managers experienced significant outflows, which it attributes to South Africa’s stagnant economy that has forced people to invest their money elsewhere.
This was revealed in Coronation’s condensed financial results for the year ended 30 September 2023.
Coronation remains one of the country’s largest asset managers, with R602 billion under management.
“The year under review was a continuation of the difficult environment that the business has been operating in for the last few years,” the company said.
It added that the anaemic market returns across domestic asset classes reflected the very weak performance of the South African economy.
Persistent headwinds have negatively impacted the South African savings pool, which has experienced net outflows for over a decade.
Despite this tough environment, Coronation managed to grow its assets under management (AUM) by 5% to R602 billion.
However, the company experienced substantial outflows for the year, with net outflows amounting to 10% of the average AUM.
“This can largely be attributed to industry-wide outflows from the global emerging markets asset class, as demand declined after a decade of weak performance, and to the contracting SA savings pool,” it said.
Coronation believes money will continue to leave South Africa as unemployment remains elevated, households come under increasing pressure, and investors continue to take their money offshore.
However, the relaxation of Regulation 28 – which will allow asset managers to increase offshore exposure from 30% to 45% – will be a positive for the industry and investors.
A research paper from economists in the South African Reserve Bank’s (SARB) Economic Research Department revealed the effect of net investment outflows on the South African economy.
In the paper, SARB economists explained a strong link between investment and economic growth, with South Africa being particularly reliant on foreign investment to make up for the country’s poor savings rate.
The Reserve Bank said in its Monetary Policy Review that South Africa experienced significant outflows from foreign investors in the first half of 2023.
The SARB attributed the significant outflows to local structural economic issues and geopolitical tensions of the country’s own making.
The graph below shows that stronger economic and asset price growth periods are strongly associated with stronger equity and bond flows.