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Foreigners pumping money into South Africa

Foreign investment has flowed into South African stocks following the formation of a Government of National Unity (GNU) and a more market-friendly cabinet. 

Investors have reacted positively to political developments in South Africa since the country’s election at the end of May. 

The election saw the ruling ANC lose its majority for the first time since 1994, resulting in the formation of a GNU that includes the business-friendly DA. 

This optimism peaked when Cyril Ramaphosa was sworn in for his second presidential term. 

The rand briefly dipped below R18/$ for the first time in over ten months. This also led to the benchmark JSE All Share Index jumping to an all-time record high and government bond yields declining to their lowest level in 14 months.

Investor optimism appears to have been sustained, with JSE data showing that foreign investors have pumped R9.1 billion into South African stocks over the past two weeks. 

This marked a sharp turn against the trend, with foreign investors dumping local assets due to uncertainty surrounding the election. South Africa recorded seven consecutive quarters of net outflows. 

The creation of a cabinet, albeit larger than ever, that balanced continuity at the National Treasury while shaking up key portfolios such as Energy, Public Works, and Home Affairs was well-received by the market. 

In particular, the reappointment of Enoch Godongwana was praised as his team at the National Treasury has managed to post South Africa’s first primary budget surplus in 15 years. 

This is a key step towards slowing the growth in the government’s debt burden and eventually reducing it, freeing up spending in other areas of the economy. 

Coupled with over 100 days of no load-shedding, foreign investors have taken a much more positive perspective on South Africa’s economic prospects over the medium term. 

Bank of America said if the reduced load-shedding can be sustained, the country’s economy will achieve over 2% annual GDP growth for the next few years. 

Other large American banks, such as JP Morgan, have also signalled positivity about South Africa’s future and are increasing their exposure to local assets. 

Foreign purchases and sales of South African equities can be seen in the table below, according to data compiled by the JSE Ltd. 

Week to 28 JuneWeek to 21 JuneTotal
PurchasesR24,556,311,000.00R24,293,373,000.00R48,849,684,000.00
SalesR20,755,865,000.00R18,976,052,000.00R39,731,917,000.00
NetR3,800,446,000.00R5,317,321,000.00R9,117,767,000.00

Foreign investment has not been limited to publicly listed companies, with Reserve Bank data showing that non-resident companies have also pumped money into the country. 

South Africa’s direct investment liabilities recorded an inflow of R24.4 billion in the first quarter of 2024, following a revised inflow of R2.5 billion in the fourth quarter of 2023. 

This was due to non-resident parent entities acquiring and increasing their equity investments in domestic companies. 

However, the bank cautioned that this data may be skewed by share repurchase programmes by foreign companies listed on the JSE, such as major miners and Prosus. 

Furthermore, the recent flood of money into South Africa has barely made a dent in the decade-long trend of foreign investors dumping local assets. 

Over the past decade, foreign investors have taken over R700 billion out of South African stocks and fixed-income assets. 

Despite the recent purchase of local equities, the year-to-date figures are still alarmingly negative, with foreign investors selling more stocks than they did over the same period last year. 

According to JSE data, foreign investors have been net sellers of South African equities to the tune of R80.8 billion so far in 2024. This is a substantial increase from the R56.5 billion sold during the same period in 2023. 

The graph below shows the performance of South African asset classes over the past 12 months, reflecting the significant uptick in investment in local equities.

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