Fading confidence drains R100bn from JSE

Investors sell R1bn more SA shares in past week

Johannesburg Stock Exchange. File image. SUPPLIED
Johannesburg Stock Exchange. File image. SUPPLIED

SA’s net equity outflows reached a grim milestone of R100bn after foreign investors sold an additional R1bn worth of local shares over the past week, keeping the rand under sustained pressure at just over R19/$ even as the electricity supply outlook showed early signs of stability.

Foreigners have been consistent net sellers of domestic shares in the past seven years, according to available JSE data, but the selling momentum has gathered pace in recent months in line with weakening growth prospects.

Over the past week, they also sold R12bn in local bonds, cutting year-to-date net purchases to just R6bn.

“The selling reflects a general loss of confidence in the prospects for the SA economy and in particular SA’s investment case,” Nitrogen Fund Managers director Rowan Williams said, adding that the rising interest rate environment has led to the realignment of capital flows from equities to dollar-denominated assets.

SA is part of the emerging market universe perceived to be risky by international investors and invariably tends to bear the brunt disproportionally during bouts of so-called risk-off sentiment compared with developed market counterparts.

While SA has avoided a technical recession, its growth trend is far below potential.

Tax revenues for this fiscal year will mostly be below target because of the high cost of doing business thanks to energy supply constraints, which have affected profits — with consequences for tax receipts.

Mining companies are also under pressure from depressed commodity prices.

The industry was a saving grace at the height of the Covid-19 pandemic as the boom in commodity markets boosted government coffers through high tax receipts and mining royalties.

“As with any investor, it’s all about returns for an acceptable level of risk. First, we just haven’t had the returns.

“After nine months of the year, the JSE all share is down just under 1% while the S&P 500 is up 11%,”   Sasfin Wealth chief investment strategist Craig Pheiffer said.

“If you convert the JSE’s return to US dollars it’s minus 11% for the year. So we just haven’t performed.

“From the risk point of view, there are lots of negatives stacked against the currency at the moment.”

The all share index lost 3.4% in the third quarter as lingering growth concerns in China hit resource stocks and luxury goods maker Richemont.

China has increasingly become a proxy for SA markets given its influence on the resource and industrial markets, which constitute a big proportion of the SA share market.

The JSE surged as much as 10% early in the year when the world’s second-largest economy did away with remaining Covid restrictions before giving up all the gains when the post-Covid recovery lost momentum.

However, there have been pockets of strength in the local market, with industrial counters such as Bidvest up a hefty 25% in the year to date.

Banks, which arguably better reflect the economic landscape, have been relatively resilient and are flat for the year so far. — BusinessLIVE


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