South African Equities Face Ongoing Foreign Exodus

Foreign investors have extended their departure from South African stocks, marking the eighth consecutive year of outflows, totalling over $50 billion leaving the market.

In the past year alone, South African equities witnessed a sell-off amounting to $8.3 billion, establishing a record-long streak of declining foreign interest. The challenging trend aligns with a difficult decade for emerging markets, where the Morgan Stanley Capital International’s benchmark index experienced modest growth of just over 3 percent.

Contrastingly, the Johannesburg benchmark index faced a nearly 6 percent loss in dollar terms, exacerbated by the rand’s 42 percent depreciation against other currencies of developing nations.

Several challenges have contributed to foreign investors’ hesitancy towards South Africa. These include corruption scandals, an energy crisis linked to the debt-ridden Eskom Holdings utility, and turmoil at Transnet SOC, the state-run rail and ports operator.

Ashish Chugh, a portfolio manager at Loomis, highlighted these factors as significant contributors to foreign investors’ caution. The nation’s high levels of unemployment and public debt add further complexities, particularly as it approaches a highly anticipated and competitive election, expected to be the most fiercely contested since the establishment of democracy in 1994.

However, Chugh also pointed out the potential for a positive shift in investor sentiment if the winning party implements robust reforms and policies to address the concerns that have contributed to the prolonged foreign exodus.