The escalating US-China trade spat hit developing markets harder, as they depend on high growth rates to draw investors. South African local currency bonds have underperformed all major emerging markets in August, except Argentina’s.
Capital Economics senior emerging markets economist John Ashbourne said outside factors influenced bond and equity outflows but were helped by pessimism about South Africa’s economy, particularly Eskom’s unabating need for bailouts.
“Given problems in Argentina, worries about the US/China trade war, and an increasing sense that the world economy is slowing, many investors are withdrawing from emerging markets for the relatively safety of assets in developed markets,” Ashbourne said.
“This withdrawal of investment will act as a headwind to local markets in South Africa, and will add to the pressure on the rand. But provided that the flows remain relatively small, it shouldn’t really change the economic picture.” South Africa’s stock market weakened significantly, shedding more than 2400 points since the beginning of the month as financials buckled under the weight of a weak rand in the period.