Foreigners continue to flee our shores in droves. They just cannot sell our assets fast enough. The chart below depicts cumulative net foreign purchases since 2004 where we can see relentless selling since October 2013 when total inflows peaked:
Examining the cumulative outflows, we see that almost one half trillion Rand has fled, with equities totaling R309 Billion and Bonds R198 Billion. Also apparent is the Ramaphoria “blip” in early 2018 – when everyone gave the government the benefit of the doubt- but that quickly evaporated 6 months later. The outflows have actually picked up pace more recently as more comes to light about the perilous state of our countries’ economy and finances and the apparent inability of the government to do anything about it.
The pace of outflows in recent weeks is of the order of R2Billion per day, but longer term trends shows how the steady average pace has accelerated to up to R500 million per working day.
This will continue to put huge pressure on the Rand, government financing of its twin deficits and liquidity for the JSE.
Nothing will change unless the government starts doing what its supposed to do to revive the economy and stops doing what its not supposed to do. An inordinate amount of time and focus is spent on legislation and political discourse on National Health Insurance (NHI), Expropriation without compensation (EWC) and National Minimum Wages (NMW) but none of these (well intentioned) initiatives are either affordable, applicable in our current economic environment nor addressing our economic, poverty, business investment climate nor employment problems. Where is legislation, programs and huge amounts of political discourse around growing the economy so we can fund all these social programs? Until concrete measures that are followed through with action (not our strong point) this consistent selling and disinvestment in SA will continue and pick up pace, especially if the last rating agency holding out is forced to move us to junk status.
Until concrete measures that are followed through with action (not our strong point) this consistent selling and disinvestment in SA will continue and pick up pace…
The shocking revelations around corruption, ESKOM and other SOE finances, bailouts without conditions, inordinate focus on costly confidence-sapping socialist programs, jumping unemployment rates and government debt and perennially consistent low economic growth against a backdrop of a rapidly growing population has created the perfect storm for continued dumping of our assets and the further collapse of the Rand. Forget about fair value and “burgernomics” that say the Rand should be R9/$ to R12/$ – this could easily swing north of R20/$ if everyone decides they have had enough of us. At the end of the day the markets will decide what the Rand is worth.
The one plus side is that the selling on the JSE has most likely brought many shares into the value zone, since the JSE index itself is now trading at 5-year valuation lows:
JSE listed stocks can always get a lot cheaper of course, but if you dig around in the TOP-40, mid and small caps shares, there are probably some quite compelling value opportunities.
Using the Sharenet JSE Scanner (https://www.sharenet.co.za/v3/frontend/share-scanner.php ) and sorting the TOP-40 by P/E shows the top “cheapest” shares.
Here are the first 20, all well below the TOP-40 overall P/E of 15.5. Some of these shares are cheap for a reason so homework is required, but there some gems are in there.
For now my opinion remains to be overweight quality Rand hedges (use the JSE scanner to list them) , Gold ETFs, USD/ZAR ETN’s, Swiss Franc, offshore shares and a small sprinkling of Bitcoin. Very little SA Inc. in there.