Reserve Bank: SA’s markets have lost twice as much as gained

Analysts' concerns that there could be large capital outflows from South Africa caused by foreign investors moving away from riskier markets back to developed countries, have proved to be valid. 

The extent of outflows from South Africa's bond and equity markets since January this year has been double the entire amount that flowed into our shores for the whole of 2013, says the South African Reserve Bank.

The bank, which presented its Financial Stability Review based on data from June to December 2013 on Thursday morning, said there had been a "continuous rotation of financial assets from emerging markets to advanced economies" since midway last year.

The movement has been caused by investors' reactions to the news that the Federal Reserve Bank in the United States would begin to pull back on its quantitative easing stimulus programme.

With the news of tapering and therefore the advent of a riskier investment environment, financiers have become more aware to the threats characterising certain emerging markets, and have been increasingly returning to the developed economies that are seeing recovery.  

"What was noticeable … was the growing influence on country specific factors," said Hendrik Nel, from the bank's financial stability department.

Investors displayed a collective inclination to differentiate between economies, rather than lumping all emerging economies as a homogenous group, as tended to happen when US Fed-stimulated money was flowing.

"During this period it was the countries with weakening macro-economic fundamentals and geopolitical risks that saw the biggest outflows," said Nel. 

Non-resident investors in South Africa sold R69-billion worth of domestic bonds and equities between October 2013 and March 2014.

"Although the 2014 year-to-date outflow from South Africa is less than that experienced by other emerging market economies, the outflow is nonetheless double its cumulative total inflow for 2013," said the report.

South African equities decreased by 9% in US dollar terms during 2013. Equity markets in advanced economies performed extremely well in comparison, said the report.

"While rotation from emerging markets to advanced economies and increased discrimination by investors were common factors driving equity markets during the second half of 2013, other factors also explained the outperformance by advanced equity economies," said the report.

This included less fiscal constraint in the US, stronger economic activity  and forward guidance by the Fed supporting equity markets in the world's biggest economy. Optimism in Europe has increased, and traditional safe haven Japan benefited from a weaker yen.

Currencies in the so-called BIITS economies – Brazil, India, Indonesia, Turkey and South Africa – have taken a harder knock than other emerging economies over the past year. The South African rand has depreciated by 17% since the announcement of tapering in May, Nel observed. 

Nevertheless, the bank was strong in its assertion that the country's financial system remains solid.

"In spite of the potential risks identified in the review, the South African financial system remains sound and fairly resilient," said Francois Groepe, deputy governor of the Reserve Bank.

Confidence in the financial services sector is improving, and the banking sector’s exposure to unsecured lending has "moderated further", he said.

Nel agreed. "We have deep financial markets, a robust infrastructure and a flexible exchange rate system," he said.

These are all things which can mitigate against the knocks that South Africa, as an emerging market currency facing internal headwinds from labour disruptions to twin debt deficits – is sure to feel.

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever. But it comes at a cost. Advertisers are cancelling campaigns, and our live events have come to an abrupt halt. Our income has been slashed.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years. We’ve survived thanks to the support of our readers, we will need you to help us get through this.

To help us ensure another 35 future years of fiercely independent journalism, please subscribe.

Thalia Holmes
Thalia Holmes

Thalia is a freelance business reporter for the Mail & Guardian. She grew up in Swaziland and lived in the US before returning to South Africa.

She got a cum laude degree in marketing and followed it with another in English literature and psychology before further confusing things by becoming a black economic empowerment (B-BBEE) consultant.

After spending five years hearing the surprised exclamation, "But you're white!", she decided to pursue her latent passion for journalism, and joined the M&G in 2012. 

The next year, she won the Brandhouse Journalist of the Year Award, the Brandhouse Best Online Award and was chosen as one of five finalists from Africa for the German Media Development Award. In 2014, she and a colleague won the Standard Bank Sivukile Multimedia Award. 

She now writes and edits for various publications, but her heart still belongs to the M&G.     


The recovered remain cautious

People who have survived Covid-19 are not going through life carefree. They are still taking all the preventative measures

Lockdown relief scheme payouts to employees tops R14-billion

Now employers and employees can apply to the Unemployment Insurance Fund for relief scheme payments

Press Releases

Covid-19 and Frontline Workers

Who is caring for the healthcare workers? 'Working together is how we are going to get through this. It’s not just a marathon, it’s a relay'.

PPS webinar Part 2: Small business, big risk

The risks that businesses face and how they can be dealt with are something all business owners should be well acquainted with

Call for applications for the position of GCRO executive director

The Gauteng City-Region Observatory is seeking to appoint a high-calibre researcher and manager to be the executive director and to lead it

DriveRisk stays safe with high-tech thermal camera solution

Itec Evolve installed the screening device within a few days to help the driver behaviour company become compliant with health and safety regulations

Senwes launches Agri Value Chain Food Umbrella

South African farmers can now help to feed the needy by donating part of their bumper maize crop to delivery number 418668

Ethics and internal financial controls add value to the public sector

National treasury is rolling out accounting technician training programmes to upskill those who work in its finance units in public sector accounting principles

Lessons from South Korea for Africa’s development

'Leaders can push people through, through their vision and inspiration, based on their exemplary actions'

Old Mutual announces digital AGM

An ambitious plan to create Africa’s biggest digital classroom is intended to address one of the continent’s biggest challenges — access to education

The best local and international journalism

handpicked and in your inbox every weekday