The presence of long-term investors protects Africa’s best-performing equity market this year from sudden capital outflows if the Federal Reserve raises interest rates, Johannesburg Stock Exchange said.
South Africa’s $529 billion market, the largest in the continent, witnessed a 50 percent surge in net foreign investment in the first quarter from a year earlier, sparking concern the country is being flooded with hot money that could leave as fast as it came if investor perception changed.
“The risk would be, if we see this massive outflow of funds, what would happen to the value of South African shares,” said Donna Oosthuyse, head of capital markets at JSE Ltd., which operates the exchange. “We are underpinned with a very large and significant stock of long-term investors. I’m not saying that’s a perfect hedge, but that does give us some protection.”
About 40 percent of stocks in South Africa are held by foreigners after first-quarter net inflows jumped to 12 billion rand ($1 billion) from 8 billion rand in the same period last year, according to bourse data. The benchmark FTSE/JSE Africa All Shares Index has rallied 9 percent this year, the best start since 2008.
The country’s stocks, which advanced 18 percent last year, got a boost from investors concerned about political and economic turmoil in Russia and Brazil, Oosthuyse said in a discussion with investors at the Bloomberg office in London Thursday.
Russia’s economy is poised to shrink 4.1 percent this year, hurt by sanctions over the conflict in Ukraine and lower oil prices, a Bloomberg survey of economists showed. Brazil is heading for its worst year since at least 1992 and a widening corruption scandal is attracting street protests.
“Global investor perception is a vulnerability we share with a lot of other markets,” Oosthuyse said. “So far, South Africa has benefited from problems in other emerging markets.”