The Markets Jacques Magliolo
‘WHEN restrictions are lifted, overseas investors will come into our country and clean out our cupboard (of shares),” a shareholder told me at one of last year’s Christmas parties.
“We have to keep restrictions and, in fact, strengthen them,” he asserted, in a near state of panic. Immediately, he had an audience and the party turned into a debating society. What ultimately emerged was that there seems to be much confusion as to whether or how foreign investors will affect our stock market and the argument became a rather heated one.
“Do you think that overseas investors actually care?” I asked and was immediately attacked. Not physically, of course, but with such vehemence that it may as well have been.
In my possession lies a research study that confirms my initial thoughts, that is, that it will take time — maybe years — before foreign investors even turn their attention towards our market. A survey of international investor perceptions, called The New South Africa: The Opportunity Ahead, was compiled by respected UK-based Shandwick Consultants after interviews with 29 top British investment institutions and stockbrokers. Its findings are interesting, if not unexpected.
Shandwick’s first finding shows that investor attitudes towards South Africa are extreme and range from a small group which is optimistic about
the future of our country to a large number of institutions that sum up their feelings in the phrase “Why take the risk?”
The first group formed an early commitment to understanding the developments in South Africa and seem determined to hold on to their decision to buy shares here. Even a unified currency and continued political risk do not seem to deter them from early investment. In fact, this group has already bought South African shares and is now waiting to reap benefits. So, local investors need not fear that these British investors will come to buy our shares en masse.
The second group contains investment houses with limited knowledge of the situation in South Africa. It tends to adopt very defensive attitudes and asserts that there is a potential for an “investment meltdown” if President Nelson Mandela leaves the political scene.
The survey quotes a fund manager as saying: “One must not get over-excited about the South African market. On balance we’ll be selective, but we do not expect it to do well against other countries.”
This attitude is held by the larger group of investors who have adopted
a cautious “wait and see” approach. Even the optimists need to improve
the level of knowledge of individual local shares.”I have met only one South African company so far, South African Breweries. That was my first company,” says a UK investment analyst.
The survey results reinforce the notion that in many cases “little serious attention is being paid to the South African market,” states Shandwick.
So how long will it take before foreigners “raid our cupboard”? Given their limited knowledge of South Africa’s economy, politics, corporations and even how our markets operate, we can safely say that no outflow of shares will take place before the turn of the century.
However, it is more likely that our institutions will buy overseas shares when restrictions are lifted. This will reduce buying pressure on our shares and cause prices to drop.