Nearly $10 Billion of South African Assets Are Being Dumped BY Foreigners

Data from the Johannesburg Stock Exchange showed that foreign investors have ditched more than 141 billion rand ($9.6 billion) of South African stocks and bonds this year – the biggest annual selloff in at least a decade.

Weak company profits, a dire economic outlook and rising chances the country will lose their last investment-grade credit ratings have sent jitters through markets.

However, unlike previous selloffs, stocks at a much higher rate than bonds are being dumped by foreign investors, with high local yields spurring carry trade and providing some support to fixed income, according to analysts.

Kieran Siney ETM Analytics said, “Demand for bonds seems like it’s being stimulated by the systematic rotation out of equities, which makes sense, especially given the attractive yields now on offer in the SAGB market,”.

“But looking at South Africa’s economic fundamentals, its hard to believe.”

On Tuesday after economic growth contracted for a second time in three quarters, suggesting 2019 gross domestic product (GDP) will struggle to pass the 1% threshold, foreign investors were net buyers of bonds while equities kept falling. Even the rand, usually sensitive to growth shocks, shook-off the stark figures after an initial dip and firmed 0.4% on Wednesday morning.

Adrian Saville, chief executive of Cannon Asset Managers said, “You look at the carry you’re being offered of 4.5% on 10-year paper in a 4% environment. Leave all else aside, that is an incredibly attractive real yield, full stop,”