JOHANNESBURG - South African bonds and equities lost their lustre in the torrid August after investors dumped at least R46billion worth of assets as trade tensions between the US and China, geopolitics and the dim domestic economic outlook weighed on the domestic market.
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.
The banks index plunged nearly 6percent in the month, while the industrial index shed more than 4000 points to just above 70000 points.
Gold mining stocks had a better month, as the price of gold benefited from being a safe harbour in the midst of volatility in equity markets and currency markets and multi-year low bond yields.
Andre Botha, senior dealer at TreasuryONE, said the outflows were a stark reminder of how risk-averse the market is at the moment. “One only needs to look at the bond and equity outflows out of South Africa for the past month and a bit which stand at a combined R53billion,” Botha said.
“This puts the rand moves into a little perspective and with the world sentiment being negative and with local issues not looking bright, a perfect storm has hit the rand in the past month.”
The International Institute of Finance said $1.5bn (R23bn) of South Africa’s equities were dumped this month, while $1.2bn in debt was forgone.