Johannesburg - Purchases by foreigners of South African stocks have reached the longest stretch in more than 14 years as investors persist in a search for higher-yielding assets that started before the UK’s vote to leave the European Union.
Foreigners were net buyers of South African equities for a 24th consecutive day on Wednesday, the longest such sequence since January 2002, figures from the Johannesburg Stock Exchange show. The benchmark index has tumbled 5.4 percent over the same period.
Emerging markets have witnessed wide swings in the aftermath of the UK’s June 23 Brexit vote as investors assessed its impact on the world economy amid speculation that major central banks will add stimulus. Evidence has increased that the Federal Reserve will refrain from tightening policy anytime soon amid rising uncertainty about the outlook for growth in the U.S. and abroad.
“There was a realisation even before the Brexit vote that monetary policy would be looser for longer in the developed markets,” Peter Attard Montalto, Nomura’s senior emerging-markets strategist, said Thursday by phone from London. “There would be a lot more money flowing into emerging-market funds - funds that were all sitting slightly underweight South Africa, a little bit long of cash.”
Read also: Gold stocks rally as bullion reaches two-year high
Foreign investors aren’t drawn to South Africa by optimism over the outlook for the country, Montalto said. The International Monetary Fund on Thursday cut its forecast for growth in the continent’s most industrialised economy this year to 0.1 percent from 0.6 percent.
“It’s very much external driving factors as opposed to anything particularly domestic; I don’t think anyone is buying into the South African domestic story,” Montalto said.
Foreigners bought R991 million ($67 million) of South African stocks Wednesday. They also picked up R649 million of local bonds, the 14th day of net purchases, the most sustained period since May 2011.
Yields on rand-denominated government bonds due December 2026 fell 5 basis points to 8.76 percent as of 12:01 p.m. in Johannesburg, compared with 1.37 percent for 10-year U.S. Treasuries, 1.27 percent for similar-dated Italian debt and -0.18 percent for German bonds, data compiled by Bloomberg show.
“The worry we have is if yields in the US increase, that will be quite painful for South Africa and all that money can flow out again,” Montalto said. “But, until that happens - and there’s no driver for that yet - it still should be very supportive of South Africa.”
-With assistance from Xola Potelwa
BLOOMBERG