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Investors return to SA as ETF short positions pruned

Driven by a rally in commodity prices and the Fed’s dovish monetary policy.

If anyone had doubts about the strength of the rebound in South African stocks, the latest data on exchange-traded funds should put them to rest. 

Investors have cut their short positions in the largest ETF focused on the country to the lowest level since 2010, data from Markit show. That accompanied a surge in net capital inflows into 41 ETFs buying stocks in South Africa to a five-year high of $136 million in the first quarter, the data show. 

The bullish sentiment is a turnaround from central bank figures that showed South Africans moved cash overseas for a 16th consecutive quarter in the final three months of 2015, the longest streak of quarterly outflows since the five years through September 1999. Direct investments by South Africans abroad more than doubled in the fourth quarter to R37.4 billion ($2.5 billion), the central bank figures, released March 8, showed.

“Investors are certainly coming back to South Africa,” said Simon Colvin, a London-based research analyst at Markit. “The story there is one of commodity rebound and the bottom you have seen in the rand.”

The short interest as a proportion of outstanding shares in the $447 million iShares MSCI South Africa ETF traded at 2.4% this week after falling as low as 0.9% on Friday. The fund has attracted net flows of $118 million this year, Colvin said.

The FTSE/JSE Africa All Share Index in Johannesburg has rallied 12% from a two-year low reached in January and the country has regained its position as the largest stock market in Africa and the Middle East. The gains were driven by a rally in commodity prices and the Federal Reserve’s reiteration of a dovish monetary policy. Investors are defying a second cut this year in the International Monetary Fund’s projection for South African economic growth, rising borrowing costs, a slowdown in its biggest market China and political turmoil surrounding President Jacob Zuma.

© 2016 Bloomberg

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