Foreign Investor Exodus from South African Equities Amid Political Change

In a startling revelation by market operator JSE Ltd. during its interim results for the first half of 2024, foreign investors have withdrawn a staggering R81 billion from South African stocks. As the financial analysis unveils, the JSE struggled with a mere 4.3% revenue increase and a 12% slump in trading revenue—a concerning sign for the economic milieu within the country.

While the recently concluded elections ushered in a Government of National Unity, painted as more market-friendly, the anticipated tide of foreign capital did not return to South African shores. Instead, the initial half of 2024 saw the continued exit, impacting South Africa's position within emerging markets, as focus pivoted towards burgeoning economies like India.

Compounding the issue, South African pension funds, spurred by regulatory adjustments, have diversified their investments well beyond national borders. National Treasury expressed surprise at the fiscal exodus, with local equity allocations in compliance with Regulation 28 dropping from 70% to 39% in less than two decades. Asset managers have not only doubled their offshore investments over the last decade but have also placed around a GDP’s worth of assets outside the country.

However, it’s not all bleak for South African financial instruments. The bond market has demonstrated resilience, drawing R35 billion in foreign investments in the same period—especially in government bonds. The optimism around South Africa's management of its escalating debt pile, with Enoch Godgonwana and David Masondo leading the Treasury, has borne fruit in boosting bond values and reducing yields.

With the GNU at the helm, the room for economic restructuring seems plausible, an opinion echoed by Stanlib's head of fixed-income investments, Victor Mphaphuli. He points out the ANC's prior mismanagement of borrowed funds—diverted towards sustaining a patronage economy rather than fostering industrial growth—which ballooned the country's debt. Mphaphuli credits the Finance Ministry's discipline for garnering market confidence, an aspect that the new government could enhance to correct the nation's fiscal course.

In the face of these developments, South Africa stands at a crossroads. The viability of the GNU carries the weight of not only restoring confidence in the markets but also the imperative of socio-economic rejuvenation to address the debt situation and foster long-term stability.