Effort will secure foreign funds

Johannesburg - South Africa's financial markets have done well to gain net foreign inflows of about R56bn this year, but the country has to act carefully if it wishes to continue attracting international capital, says an analyst.

The inflows this year follow a net sell-off of R50bn in 2008.

"South Africa is in a far better position than it was a few years back, courtesy of five or six years of steady policy implementation," said Konrad Reuss, MD of South African operations at ratings agency Standard & Poor. "This track record is not something to be underestimated."

However, he said the controversy around the Vodacom listing - which was nearly stalled after a last-minute legal wrangle - is an example of an incident the country could ill afford.

"It would have been a bloodbath the next week if the government had interfered at that time," he said.

With the rand remaining one of the world's most volatile currencies - it was the worst-performing emerging market currency in 2008 and the best in 2009 so far - Reuss said he did not expect it to be the focus of attention for foreign speculators and capital flows.

"The so-called hot money is more likely to be in short-term debt markets," said Reuss.

A local portfolio manager who spoke to Fin24.com after the announcement of power utility Eskom's R9.7bn loss said he was steering clear of South African government debt.

He added that government would need to sweeten the yield it was offering foreign investors if it hoped to attractive further investments.

Declining confidence

The Sanlam Investment Management (SIM) Investor Confidence Index for August showed a material decline, dropping from 78 in July to 57 in August - its lowest reading since inception in mid-2007.

Taken from research conducted between August 18 and 20, this reading implies that 57% of respondents think the market is cheap or fairly valued.

Frederick White, head of asset allocation and macro research at SIM, said this dip was not necessarily a hint that the country would see outflows, but that investors should be watching for indications that consensus forecasts are starting to view equities as expensive.

White said given the recent rally, many market commentators would not be surprised by some market weakness in the near future.

"The SIM index is a lagging indicator," White said.

- Fin24.com