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Non-resident holdings of SA equities reach record low of 27.6% in Q1 — Reserve Bank

Non-resident holdings of SA equities reach record low of 27.6% in Q1 — Reserve Bank
The JSE in Sandton, Johannesburg. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

Non-residents are increasingly giving the shrinking offerings on the JSE a miss and directing their capital elsewhere. In the long run, that’s not good for the rand and is a vote of no confidence in South Africa as an investment destination.

The JSE is not that far off the record highs it scaled early last year, but foreign investors are not coming to the party. 

The percentage of South African equities owned by non-residents hit a record low in the first quarter (Q1), the South African Reserve Bank said in its bi-annual Financial Stability Review on Wednesday. 

“Continued outflows from the equity market were reflected in the share of non-residents’ holdings of domestic shares, which reached a new low of 27.6% at the end of March 2024 (down from 29.7% in December 2023),” the review says.

On the portfolio front, foreign investors are also dumping South African bonds.

“Non-residents were net sellers of R12.4-billion worth of JSE-listed bonds in the first quarter of 2024,” the review says. This is a reversal of Q4 of 2023, when there were net purchases of bonds to the tune of R11.2-billion.

This is all part and parcel of falling capital market depth and evaporating liquidity in South Africa’s once robust financial markets, with domestic investors adding to capital flight as they increasingly diversify into global markets. 

“South Africa’s capital markets have become shallower and less liquid over the past few years, which reduces the diversification options of both borrowers and investors,” the review says.

“The government has increasingly dominated issuance in the domestic bond market, increasing its share of total outstanding bonds from around 60% in 2008 to 81% at the end of February 2024.”

This worrying state of affairs stems from the government borrowing and spending like a drunken soldier, driving up South Africa’s debt-to-GDP ratios while driving its credit ratings down into junk status.

“Meanwhile, on the JSE, there have been net company delistings every year since 2016. Turnover in both the domestic bond and equity markets have also declined in recent years, potentially affecting efficient pricing, investor returns and the cost of funding.”

Among other things, this explains the long-term decline of the rand and reflects falling investor confidence in an economy with slowing growth and many serious challenges. 

The JSE-Top 40 index on Wednesday afternoon was trading at over 70,600, not too far off its record high of over 75,000 in early 2023. But it is generally lagging behind major stock indices.

And so, non-residents are finding higher returns elsewhere. DM

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