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Bold foreigners turn back to SA securities

Foreigners are regaining their appetite for domestic stocks and bonds. Equities, particularly, have been doing well, reversing an earlier trend of net outflows. Demand from abroad has helped drive the JSE all share index to a series of record highs this month.

Leon Myburgh, a strategist at Citi, said non-residents had bought a net R3.7 billion in listed shares and R2.9bn in bonds since the start of the month. Combined, the net portfolio purchases have been worth R6.5bn, more than the R5.5bn placed by offshore investors in the whole of last month.

Ben S. Bernanke, chairman of the U.S. Federal Reserve, speaks during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., U.S., on Wednesday, Dec. 12, 2012. The Federal Reserve said it will buy $45 billion a month of Treasury securities starting in January, expanding its asset-purchase program, and for the first time linked the outlook for its main interest rate to unemployment and inflation. Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Ben S. Bernanke. Credit: Bloomberg

In the year to date, non-resident portfolio flows have been worth a net R82.5bn compared with R24.7bn in the whole of last year. Over the period, non-residents have bought a net R87.5bn in bonds and sold a net R5bn worth of equities.

Nedbank Capital noted yesterday that investors had shown increased interest in emerging markets since September. However, domestic events, including industrial unrest and confusion over local economic policies, had delayed the impact on the local market. According to the Reserve Bank, combined portfolio flows were more than R3bn in the red in October.

Despite the substantial inflows over the year as a whole, compared with last year, the rand weakened from a little over R8 to the dollar at the start of January to almost R9 on November 21. Shortfalls on the trade account have eroded the value of the currency.

In the third quarter, the gap between earnings on exports of goods and services and the import bill was over R200bn. The figure is adjusted for seasonal factors and multiplied by four to show an annual trend.

Since the start of the month, the currency has regained some lost ground, trading at R8.6573 to the dollar at 5pm yesterday. This is largely because international investors have regained confidence about the state of the global economy and are looking around for better returns than are available in advanced economies.

But the more bullish sentiment could be reversed by domestic developments or the failure of US politicians to soften the impact of the fiscal cliff – the expiry of tax breaks and additional spending cuts due at the start of next month.

Federal Reserve chairman Ben Bernanke warned this week that monetary policy easing would not be able to offset damage from the fiscal cliff.

This comment countered the cheer that would have followed Bernanke’s announcement that the Fed would keep interest rates near zero, at least until the unemployment rate falls below 6.5 percent.

Barclays Research said the Fed’s supportive monetary approach was “part of a broader effort by global central banks that should contain large negative tail risks and continue to encourage a shift in positioning from increasingly overvalued ‘low-risk assets’ into somewhat riskier asset classes”.

But investors were uncertain yesterday which way to move and stock markets were mixed.

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