Foreigners boost holdings in SA equity market this month

Foreigners who have been moving out of the local equity market for most of the year changed tack this month.

Despite uncertainty about South Africa’s policy direction and high risks abroad, which traditionally drive international investors into safer havens, they are now buying local shares.

Non-residents sold a net R6.2 billion worth of domestic equities last month, according to Leon Myburgh, a strategist at Citi. And, in the year to date, they have been net sellers to the tune of R5.4bn. But, in the month to date, they have invested a net R5.2bn in JSE-listed companies – R6.3bn in the last 10 days.

At the same time, offshore funds which flowed into bonds for most of the year have turned negative.

Foreigners bought a net R2.8bn worth of bonds last month and R79.6bn in the year to date. But, this month, R1.5bn worth of non-resident investment flowed out of domestic bonds.

While the bond sales are easily explained by events in the mining sector since August and general uncertainty ahead of the ANC elective conference in Mangaung in December, the bullish sentiment about shares is harder to understand.

Doug Blatch, the head of equities trading at Investec Asset Management, described the pattern as “a puzzle”.

An equity analyst, who asked not to be named, was also at a loss for an explanation. He said the JSE had performed very well in recent months, but only in local currency terms.

The all share index has risen 14 percent since the start of the year, breaking a series of records over the past few months. However, in dollar terms the increase was only 5 percent, because the rand fell from R8 to the dollar at the start of the year to R8.73 on Friday.

Nic Andrew, the head of investments at Nedgroup, said local shares possibly offered better yields than elsewhere. While the all share index average yield was 3 percent, some shares offered more, with Vodacom yielding 6 percent, according to Andrew.

JSE data showed, between the start of last month and Thursday last week, the sectors that benefitted most from non-resident flows were mobile telecoms R2.6bn; beverages R2.2bn; and banks R1.8bn. The biggest loser was mining at R4.5bn.

The economy is not in strong growth mode. Barclays noted that the Reuters’ consensus forecast for the year slipped to 2.4 percent this month from 2.5 percent previously and to 2.9 percent from 3 percent for next year. Markets globally weakened after the US election. Attention has turned to the looming fiscal cliff in the US. Politicians have been unable to agree on whether to extend a series of tax breaks, due to expire at the end of the year.

Together with simultaneous spending cuts, the expiry could suck $600bn (R5.2 trillion) out of the economy. If the impasse continues, the US could head into another recession.

In line with markets in most of the world, the JSE all share index dropped on Friday – from 37 593 at its previous close to 37 344.40. And the rand weakened to R8.7375 to the greenback by 5pm.