Funds flow abroad as SA votes with its feet

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The value of South African assets that pension funds, asset managers and private companies have invested overseas stood at R5.27-trillion in the third quarter. Meanwhile, foreigners' investment accounts in this country have fallen 0.2% in the same period, to R5.16-trillion. Investments by local businesses and fund managers overseas include international stock and bond markets.

International investment position

South Africa's net international investment position changed to a positive R113-billion in the three months to September 2015 for the first time since data on this was first collected in 1956, according to the Reserve Bank. This is from a negative R131-billion in the three months to June. The R113-billion is the difference between South African foreign assets and liabilities.

"It will be interesting to see what the fourth-quarter figures look like. South Africans are voting with their feet by taking the money outside the country," said Lesiba Mothata, head of markets and economic research at Investment Solutions.

The majority of the country's foreign assets are denominated in foreign currency, making gains more pronounced relative to foreign liabilities or inward investments.

Weak rand

The rand, which has fallen to record lows against major currencies because of a range of factors including weak economic growth, declined materially in the third quarter. It hit another record low against the dollar last Friday of R16.22.

Lefika Securities economist Colen Garrow said the country's reserves would not be enough to protect the rand should it come under a speculative attack. "The Reserve Bank has unwittingly damaged sentiment towards the rand, signalling that it's concerned by its adverse movements. Speculators could prey on this 'vulnerability'."

The drop in South Africa's foreign liabilities reflected a decrease in inward portfolio investment, more particularly in equities. Indeed, the JSE suffered steeper losses in the third quarter due to uncertain global economic growth prospects and the future path of US monetary policy.

"The volatility and decline in domestic and global equity markets as well as the significant decline in the end-of-period exchange rate of the rand resulted in a respective modest decline in foreign liabilities and a substantial increase in South Africa's foreign assets in the third quarter of 2015," the central bank said.

Source: Business Times