Monthly Update: Non-Resident Purchase of Bonds and Shares in South Africa

FRIDAY 30 Nov, the South African Reserve Bank published the October numbers on non-resident purchase and sales of South African bonds and shares. The most notable development in this release was a further acceleration of net equity sales on the JSE by non-residents (highest since January this year). Rand weakness in October (see bottom chart) was clearly a consequence of this selling. October was the fifth month in a row with increased net selling of South African equities – a reflection of the international investors’ perception of the SA economy. In ordinary times one would see SA capital flows be driven by global risk appetite. But with the exceptionally low and steady level of the VIX in recent months, one can hardly explain this divestment in SA equities as a risk-off scenario. Rather, this appears to be SA specific, potentially caused by global media attention surrounding violent strikes in the country.

Net bond purchases by non-residents are still positive, but lower than previous months and may soon follow equities into negative territory if the global media continues with its bleak reporting of SA conditions. The total of net bond and share purchases was negative, indicating a net outflow of capital held by non-residents. This net selling of SA assets was indeed the highest since September 2011. However, as can clearly be seen below, the September sales last year were not caused by SA specific reasons, but rather global risk aversion (the VIX spiked to above 40 in the same month). Thus, we have to go back to 2010 for a net selling pressure like this, caused by South African conditions. The October Capital Flow Heat Map will rate South Africa as Chilled with Freezing temperatures possible for November.

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