Foreigners snap up SA equities

2009-08-21 07:56

Johannesburg - By the close of business on Tuesday, foreigners had invested a net amount of R51.2bn in South African equities this year.

This figure stood in stark contrast to the picture a year ago, when foreigners were net sellers of South African equities worth R10bn until the end of July (net buyers of R47bn from January to end-July 2009), representing a R57bn swing.

According to Brait economist Collen Garrow, foreigners' renewed optimism for SA equities can be attributed to the search for good value investments as uncompetitive interest rates in developed countries, which were adopted to encourage consumer spending, delivered low returns.

"The money is coming from investors who are tired of getting subdued returns and now willing to take on more risk for a better return," said Garrow. "We've got a good mix of fiscal, monetary and macroeconomic policy which has been noted by the rating agencies."

In July Moody's graded South Africa's local currency government credit rating to A3. This infers a low credit risk for the country but suggests vulnerability to impairment over the long term.

"South Africans are adapting well to political change," he said. "At the same time we've got monetary and fiscal policy continuity. The message the government has been sending out has been continuity in policies; this has helped South Africa gain credibility in the emerging market context."

Hunger for good returns

High foreign inflows are likely to remain for a while. Garrow said any steps SA takes to shorten its recession would be well received by the investment community.

"The investing foreign community is hungry for returns they can't get in their own markets and emerging markets offer these," he said.

The Moody's rating has upped SA's profile, Garrow said. "The message sent out is that we're capable of better things. If we can deliver, we'll start seeing longer-term foreign direct investment coming in and not just short-term capital."

South Africa has already seen some foreign direct investment transactions in 2009. In May, Telkom sold a 15% stake in cellular group Vodacom to Britain's Vodafone for R22.5bn, making Vodafone the majority shareholder.

American investment company Paulson & Co bought an 11.3% shareholding in AngloGold Ashanti for R1.28bn in March.

Furthermore, in a proposed $23bn deal between India's Bharti Airtel and MTN, Bharti may acquire a 49% stake in MTN.

Garrow said it was critical to attract the longer-term foreign direct investments as the short-term flows are fickle because "they can leave in a much shorter space of time than they came in".

However, he said the biggest risk to continued investments will be if the global economic recovery proves unsustainable.

Another risk is possible social unrest. "We need to see service delivery to the majority of the people," said Garrow.