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.