(Walter Bieri/Keystone via AP, file)

JOHANNESBURG - US investors had escalated selling South African equities averaging a net  $12.2 billion in the past 20 months, but next year investor appetite might rekindle, according to Credit Suisse.

The Zurich-based financial services group said in its 2018 outlook for market equities that the outflows were the most concentrated withdrawal since at least 2000.  

The outlook showed that South African stocks had been less attractive for foreigners as they had factored in a weakening rand on top of anaemic growth, rich valuations and political risks.

“With this magnitude of investor capitulation behind us, we believe that appetite for South African assets may begin to rekindle into 2018 should valuations offer an attractive entry point,” Credit Suisse said.    

The firm, however, noted that South Africa’s corporate value creation remained amongst the strongest in emerging markets. 

“This feature of South Africa to sustain superior return on equity versus the overall asset class is critical to determining the relative performance of its equity market as we find that relative value creation is historically closely associated with relative equity market performance.” 

The South African stock market has been on a bullish run in recent months  with the JSE's all share index reaching a record high of 61211.52 last month.

Pieter Hugo, the managing director of Prudential Unit Trusts, said investors had been understandably worried about their returns over the past three years. 

“After three years of disappointing equity returns, the FTSE/JSE All Share Index (ALSI) has delivered a return of 19.6 percent in 2017 to the end of October.” 

“In the past three years, local equities were largely flat, underperforming money market returns and even not beating inflation over two years,’’ Hugo said.  

Credit Suisse said it maintained a bearish outlook for South Africa primarily on account of five concerns. 

The firm said the macro environment remained unfavourable for domestic earnings and political uncertainty had kept investment dynamics in the doldrums. It said consumption and sentiment also remained weak as households deleverage, adding that the equities would be affected by expected rand weakness. 

Credit Suisse said Steinhoff International, Vodacom, RMB Holdings, Investec, Tiger Brands, Bidvest Group, Mr Price and Woolworths were expected to offer dividend yields superior to emerging market sector peers in 2018.

Old Mutual chief investment strategist Dave Mohr said local equities had another positive month in November  outperforming global markets in dollar terms. 

"The FTSE/JSE All Share Index (Alsi) broke through 60 000 index points for the first time during November, but slipped below that level on the last trading day. Nevertheless, the Alsi returned 1.5 percent in November, including dividends and 21.4 percent for the year," Mohr said.