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Foreign investors are switching their focus from local bonds and shares to direct stakes in local companies. And Chris Hart, the economist at Investment Solutions, predicted yesterday that local firms, with a strong footprint in Africa, could become targets in the year ahead.

He cited retailer Shoprite Checkers and construction company Murray & Roberts as examples because both have operations in countries across the borders.

Hart said that the planned $2.3 billion (R15.6bn) acquisition of a controlling stake in Massmart, by US-based Wal-Mart Stores, had boosted the rand in recent months. Though the Massmart deal is still a work in progress, Hart said that the giant multinational would not wait for approval before arranging the currency transfers needed to compensate local holders of Massmart shares.

There is also a knock-on effect, as the high-profile deal attracts attention to the growth opportunities in South Africa and the continent.

Another major deal this year was the $3.1bn acquisition by Japanese telecoms service provider Nippon Telegraph & Telephone of local information technology company Dimension Data, in October.

Boosted by these transactions, the rand has strengthened in the face of net bond sales by foreigners and only modest inflows into JSE-listed shares in recent months.

According to Reserve Bank figures, foreign investors have bought a net R92.4bn in local securities so far this year – down from R94.8bn by the end of September this year and just a little ahead of a net R90.9bn inflow last year.

Despite this, the rand has strengthened from about R7 to the dollar at the end of September to trade yesterday at about R6.77; and from about R9.50 to the euro to R8.84.

Hart said Africa represented significant opportunities because it remained resilient despite the global recession of 2007/08 and the financial crisis.

He said the relatively strong growth was now off a far higher base than in the past. “Angola, for instance, has gross domestic product worth $60bn to $70bn, compared with about $5bn to $10bn 10 years ago.”

But net flows into shares listed on the JSE were worth only R35.7bn this year, compared with R75.4bn last year.

Claude van Cuyck, the head of equities at Sanlam Investment Management, said there were several factors: shares were cheaper 12 months ago than they are now; investor interest may have switched to other emerging markets; and investors may fear the rand’s strength is not sustainable.

The pace of net bond outflows has accelerated: from R989 million in October, to R6.8bn in November and nearly R11bn this month.

Ilke Smit, an economic analyst at Metropolitan Asset Managers, said bond inflows were driven by foreigners’ expectations that local bond yields would fall and prices would rise because the Reserve Bank had more space to cut interest rates than other emerging markets. - Ethel Hazelhurst