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Cash flees SA in longest run of outflows since ’99

Poor growth, volatile political environment adds to risk.

South African investors are shifting cash overseas at the most-sustained pace since outflows triggered by the end of apartheid as political upheaval undermines confidence in the continent’s second-biggest economy.

Money poured out of the country for the 16th consecutive quarter in the final three months of 2015, the longest streak of quarterly outflows since the five years through September 1999, according to central bank data. An increase in South Africans investing abroad followed a gradual relaxation of exchange controls almost each year since 1995, about a year after Nelson Mandela’s African National Congress won the first all-race elections.

Outflows show no sign of abating as President Jacob Zuma faces mounting pressure to resign after the country’s top court last month ruled he failed to uphold the constitution and members of his party rallied to his defense to defeat an opposition-led effort to have him impeached. Investec Asset Management has seen 60% of domestic flows shift into its offshore funds in the first three months of this year, compared with 40% in the prior quarter, the company said on Monday. 

“We see a net outflow of rand across all our desks,” said Andrew Rissik, the managing director of foreign-currency trading at Sable Group, a London-based money manager with 100 million pounds ($142 million) in assets. “Poor decisions by Zuma and the ruling party triggered a widespread urge to move assets abroad.”

Rand Rebound

Last quarter, Sable channeled R500 million ($34 million) for private individuals out of the country, compared with R450 million in the final three months of 2015, he said.

A rebound in the rand, along with other emerging-market currencies that are gaining against the dollar, has also allowed South Africans to pile up on offshore holdings, said George Herman, head of South African investments at Cape Town-based Citadel Investment Services, which oversees about R42 billion. The rand strengthened 0.3% to 14.6750 per dollar by 1:03pm in Johannesburg on Tuesday.

The local currency, bonds and banking stocks plunged in December after Zuma fired his well-regarded finance minister and replaced him with a little-known lawmaker. The president changed his mind four days later, re-appointing Pravin Gordhan who held the post from 2009 to 2014.

‘Volatile Environment’

With the government forecasting the economy will expand at a rate of less than 1% this year, the risk of a credit-rating downgrade to junk and South Africa’s “politically volatile environment,” the rand’s advance is likely to be temporary as investors seek faster growing assets and havens, Herman said. “It is difficult to make a case for substantial rand strength in the current environment, so currency will keep on flowing out.”

A severe drought, drop in commodity prices and political uncertainty in South Africa are weighing on the country’s growth prospects, Marek Hanusch, a senior economist for the World Bank, was cited as saying. The Washington-based lender predicts an expansion of 0.8% this year.

Direct investments by South Africans abroad more than doubled in the fourth quarter from the previous three months to R37.4 billion, the most since the third quarter of 2014, according to data from South Africa’s central bank, released on March 8.

“The majority of the foreign flows have been into equity and multi-asset funds offshore,” Sangeeth Sewnath, the deputy managing director of Cape Town-based Investec Asset Management, which oversees about $105 billion, said in an e-mailed response to questions. “This is encouraging as investors are not merely exposed to currency risk.”

© 2016 Bloomberg

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Given the political uncertainty, the gross corruption and the anti-white rhetoric
how is this going to change?

Mostly invested when the dollar was R16.90 no doubt?

Factually this article is not quite true. Firstly we should ask Moneyweb to show us a graph of the Rand / Dollar since 01/01/2011. Clearly you will see that the currency lost ground drastically since June 2011. Why? An increase in the foreign offshore investment allowance made it possible to invest more than the allotted 15% offshore. Asset managers all increased there offshore exposure from 15% to 25% and an additional 5% into Africa. Thus by doubling the offshore allowance a higher demand for Dollars resulted in the currency weakening. Now that real interest rates have increased ( bond rates are higher) we see the currency coming back. perhaps we are all blaming the wrong person? Government does not win when the currency weakens, but Asset managers certainly have made serious fees over the past 5 years and will do so for some time if the currencies comes back because the poor investor will be forced to leave offshore investments offshore! Look into this!

big mistake by south africans! rand will get stronger, then what?

Why will it get stronger?

ebbs and flows! all markets are manipulated!

In the last 45 years since I arrived to SA the Rand has been definitely weakening steadily. There were short periods when it improved but the overall trend is down. Why would it change now? When Zuma resigns it will improve a bit but the economic situation is not going to change. There is an increasing number of untrained and mostly untrainable working age people who expect everything free, from education to housing. The tax base is not increasing in line with the growing population.

Yes it is. For example, the population increased 12% from 2004-2013 but the tax base increased 54% over the same period.

No worries with physical gold & silver.

Except the usual worry: opportunity cost.

Agree with Paolo.Financial markets are so rigged these days that the rand is probably heading for 10-12 to the dollar.With fair value of about 6 there’ll still be a good risk premium built in!

End of comments.

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