THE INSIDE VIEW ON JSE OUTFLOWS
Finweek English|24 September 2021
SA’s stock market has been bleeding foreign capital lately. What lies behind the outflow and what can be expected from the bourse going forward?
Brendan Peacock

When the CEO of South Africa’s major stock exchange, the JSE’s Leila Fourie, hit the headlines recently for saying outflows of foreign capital from the exchange kept her awake at night, many investors would have been left wondering how alarmed they should be and what action they should take. While the country’s structural issues are well-known and have been publicised for years, epitomised by our sovereign credit rating downgrade, Fourie’s comment was not contextualised. Immediate questions for retail investors would have included the timing of what was a seemingly worrying view. What implications do these outflows have for asset prices, liquidity and investor returns on the JSE?

Though the answers appear to be simple on the surface, the trends are nuanced and it pays to get inside the heads of industry professionals to find out how they view the JSE currently.

Galileo Capital executive director Warren Ingram says the long-term structural macro trend of foreign investors withdrawing from SA in all spheres will continue. “From the real estate market to bonds and equities, foreign investors continue to move money out of the country. Inside that is a cyclical pattern. In assets where things are currently going well, the withdrawal may slow down or even temporarily reverse, but the overwhelming trend remains the exit of capital.”

Ingram cites Jacob Zuma’s ascendancy to leading the ANC as the point where the tide turned. “You can pinpoint it, and it didn’t slow down or reverse when Cyril Ramaphosa took over. In 2007, many good JSE-listed businesses were expensive. We’ve gone from fair value to being ridiculously cheap. At that time, SA fund managers rode the maximum of their offshore allocations and that continued until last year, when asset managers moved their money into domestic assets. The main reason is purely valuations – what some fund managers uncharitably call bottom feeding. They’re finding opportunities based on valuations, but this does not signify a positive structural shift or economic turnaround.”

Protea Capital Management CEO Jean Pierre Verster adds that when SA’s sovereign debt was downgraded, a large amount of money was technically restricted from buying our bonds – exacerbated by perceptions of risk related to the SA economy and political landscape.

“While that is well-known, on the equity side, SA was also included in a number of emerging market indices where our relative weighting has decreased over the last decade because of the strength of China’s growth. Chinese companies have now crowded out most other emerging market counters from FTSE, MSCI and S&P indices, to name a few. Even active managers referencing the same benchmarks would have sold SA equities,” he says.

To make matters worse, the recent Naspers*-Prosus transaction resulted in a significant decrease in the weight of Naspers in emerging market indices and an outflow of rands from the JSE to Amsterdam. “We also saw a greater outflow from JSE-listed retail stocks, because the big run-up in that sector until 2017 was driven by foreign capital. They have now experienced the withdrawal more harshly than other sectors,” Verster adds.

The micro trends can appear confusing. “Money wants to be invested at the highest yields possible, either in debt or for a return on equities. In the last few years, interest rates in developed markets have been slashed, which means there has been a lot of money seeking the highest relative returns and that has tended to be in emerging markets. On a relative basis our bond yields are still very attractive, and cheap valuations are now attracting foreign equity investors again,” Verster says.

Continue reading your story on the app

Continue reading your story in the magazine

MORE STORIES FROM FINWEEK ENGLISHView All

Delay, Save, Buy, Repeat

Take a journey to see how delaying big purchases can impact a person’s financial wellbeing.

8 mins read
Finweek English
8 October 2021

SA's Top Equity Funds

Generating alpha amidst a market-wrenching pandemic has been a challenge and a half for many fund managers.

9 mins read
Finweek English
8 October 2021

Behind South Africans' ability to save

Poverty should be considered when discussing South Africa’s saving culture.

6 mins read
Finweek English
8 October 2021

Estate headaches

It’s not always easy to wind up an estate. Sometimes problems and disputes arise, and according to experts, most of them can be prevented.

6 mins read
Finweek English
8 October 2021

It's not about you!

Why we need a broader lens to address the issue of debt in individuals.

7 mins read
Finweek English
8 October 2021

Combing through the financial results

The balance sheets, income statements and cash flow statements of companies are key documents to gain insight into their health and future.

3 mins read
Finweek English
8 October 2021

Exxaro's new strategy

The coal producer has announced that the group would target acquisitions in bauxite, manganese and copper.

3 mins read
Finweek English
8 October 2021

The battle between active and passive

Some considerations in the decade-old debate remain important.

4 mins read
Finweek English
8 October 2021

Showing signs of an exhausted run

Clicks is a provider of health and beauty merchandise and is the largest retail pharmacy chain in South Africa. The company also owns the pharmaceutical wholesaler United Pharmaceutical Distributors (UPD).

2 mins read
Finweek English
8 October 2021

Will taxing chrome ore backfire?

David Kovarsky, spokesman for ChromeSA, answers questions on government’s proposed chrome ore tax.

3 mins read
Finweek English
8 October 2021
RELATED STORIES

Down to Their Last Dollar

Businesses fail every day, from world-beaters (like TWA and Lehman Brothers) to sexy high-fliers (DeLorean, Enron) to Steady Eddie, old-school icons (Toys “R” Us, Sears). Sometimes, of course, market conditions simply turn Sisyphean. But often, when that boulder starts to roll backward, a leader’s grit, imagination, resourcefulness, and ability to conjure a little luck can mean the difference between a brave new chapter and, well, Chapter 11. Here, four businesses that went from nearly bust to total gangbusters.

3 mins read
Inc.
October 2021

LCD Reloaded

IN 2020, Sound & Vision tested Samsung’s 65-inch Q90T series TV, an LCD model that lacked some of the features and refinements found in the company’s flagship sets from the previous year.

10+ mins read
Sound & Vision
October - November 2021

The Power Station

TRUE STORY. My very first hi-fi system featured a Rotel integrated amplifier—if memory serves, a model RA-20 of some 20 watts per channel.

8 mins read
Sound & Vision
October - November 2021

We Are All Indigenous Global Citizens

WAKANYI HOFFMAN is a Global Education Specialist and founder of the African Folktales Project. Here, she speaks with SARA BUBBER about the value of storytelling and passing down wisdom through generations, her Kikuyu culture, and how all of us are indigenous people contributing to the world.

9 mins read
Heartfulness eMagazine
October 2021

COVID Diaries: Sarah Jones

The 700,000 Death Toll An atheist stumbles toward a way to grieve.

6 mins read
New York magazine
October 11 - 24, 2021

Flights of Fancy

Imaginative art installations take off at airports around the world.

8 mins read
Global Traveler
Class Act 2021

Safe Travels

Enhanced protocols for aircraft cleanliness protect the health of customers and crews.

5 mins read
Global Traveler
Class Act 2021

Facing a Hard Choice? Get Out of Your Head

When we look at a decision through someone else’s eyes, change becomes a lot easier to make.

3 mins read
Entrepreneur
October - November 2021

Don't Compete. Differentiate!

Want to scale your business? Stop worrying about the competition, and focus on these three areas instead.

3 mins read
Entrepreneur
October - November 2021

Where Change Leads You

The process can be painful, but the goal is profound: Find something new that you’d never want to lose.

3 mins read
Entrepreneur
October - November 2021