- Foreign Investors Selling South African Assets
Foreign investors are selling South African assets at a record pace as they doubt Cyril Ramaphosa’s ability to keep it all together ahead of a potential rate cut.
Foreign investors have sold a total of $4.8 billion of South African stocks and bonds year-to-date, the highest sell-off since 1998.
The poor growth rate recorded in the last two quarters and persistent power outages have hurt business confidence in Africa’s second-largest economy in 2019, especially after the central bank lowers its growth projection and Moody’s dropped its forecast from 1.3 percent to 1 percent.
Capital flight surged the most in the fixed-income market as rating companies are expected to lower South Africa’s credit rating going forward.
The rand weakened by 2.5 percent against the US dollar last week after Moody’s Investors Service said government plan to increase financial support for a state-owned power company, Eskom Holdings SOC Ltd., was credit negative. That was from Moody’s, the only major ratings that still have South African debt above junk.
On Friday, Fitch Ratings Ltd lowered its projection for South Africa to negative in 2019, while JPMorgan said the recent rally in the rand was as a result of the supportive global environment and not because of an improvement in the local economy.
“We now believe levels are stretched enough to enter outright rand shorts,” JPMorgan analysts including London-based Anezka Christovova and Robert Habib in New York said in a note. “South Africa’s fundamental picture remains very challenging with a ballooning fiscal deficit and structurally low growth.”
The uncertainty surrounding the central bank’s ability to curtail the situation is responsible for the drop in market sentiment, the surge in capital flight and broad sell-off of Africa’s most industrialized nation’s assets.