Investors ignore South Africa

John Johnson
John Johnson

Global Courant 2023-05-08 20:08:18

Foreign investors are staying away from South Africa this year as investment opportunities don’t look as promising as they used to.

Luigi Marinus, portfolio manager at PPS Investments, said global equity markets recovered slightly after a volatile 2022, while local stocks delivered more modest returns.

According to Marinus, the stock market was up 2.4% in the first quarter of this year (measured by the FTSE/JSE Capped), although the index was down 2.0% in March due to the poor performance of the banking sector .

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While there was a slight improvement in local equities, the underlying instability and inability to predict the market have increased South African companies’ risk.

John Gilchrist, PSG Asset Management’s co-chief investment officer, said corporate stocks in South Africa are priced excessively pessimistic, often forgetting that local companies have faced poor economic conditions for years and are still performing as they should.

Gilchrist added that when risks are involved, investors’ assumptions about a country are often overly positive or negative.

Investors often express a desire to avoid ‘risk’ – usually when market conditions become volatile and the outlook is uncertain.

The most recent data from DFM Global, an independent discretionary fund manager, reported that there had been high levels of capital outflow from local equity and bond markets in South Africa.

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DFM Global said capital outflows from foreign investors began in the third week of the year and accelerated in February and March.

More than R170 billion worth of South African stocks and bonds have been sold by international investors since the beginning of 2023, according to the latest measurements.

Volatility and the lack of a clear reward for investing are two primary factors that drive away conservative investors looking for more reliable and smooth returns gains.

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Slowing economic growth due to the tax shedding, coupled with regulatory shortcomings such as the recent greylisting, have also contributed to suppressed interest in the country as an investment destination.

South Africa is in the dog box

PwC’s latest Economic Outlook report for South Africa reported that when a country is graylisted, there is a significant decrease in overall capital flows.

Research by the International Monetary Fund (IMF) found that when emerging and developing countries were graylisted in the period 2000-2017, this resulted in a drop in capital flows equivalent to 7.6% of GDP over a period of nine months.

In the case of South Africa, the financial services company reported that companies had experienced a wide range of consequences from the greylisting, including:

Deferred foreign investment; Increased transaction and compliance costs; A negative impact on the valuations of unlisted companies.

Another factor in the wheel of foreign investment is the surprise move by the South African Revenue Service (SARS) to tighten exchange controls, making global investors hesitant to invest in the country.

In conversation with BizNews, Brenthurst Wealth founder, Magnus Heystek, said investors are willing to go places where their money can be more valued.

South Africa overestimates its role in the global economy and tries to weigh in when in fact it has little effect.

For example, the country has remained neutral and called Russian President Vladimir Putin a “friend”, suggesting that it is collaborating with the West’s number one public enemy.

“We are very dependent on Europe, the UK, the US and Australia for trade, and we don’t make friends,” said Heystek. “We can pay the price for that.”

Read: South Africa’s 14-year streak of losses continues

Investors ignore South Africa

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