Increase in net outflows displays SA’s vulnerability

JOHANNESBURG – A sharp increase in net outflows of foreign funds last week underscored South Africa’s vulnerability to rising risks in financial markets globally.

Leon Myburgh, the sub-Saharan Africa specialist at Citi, said on Friday that net non-resident outflows for the month had nearly doubled the previous day. “In the month to Tuesday (last week) net outflows from local bonds and equities amounted to R8,3 billion,” he said.”However, when markets reopened after the Heritage Day celebrations on Wednesday, non-residents sold R2,3 billion in local equities and R5,9 billion in South African bonds in one day.”Myburgh said net non-resident flows were last positive in June, when N$2,2 billion was invested in local bonds and stocks.In April net inflows amounted to nearly N$22 billion.Details of the US$700 billion (N$5,7 trillion) rescue package for the faltering US financial system could inject some stability into global markets yesterday, after sharp swings over recent weeks.US legislators were working on the deal on Sunday.Risks remain high, however, as regulators in the major economies grapple with the biggest financial crisis in 79 years.Reuters reported that the proposed bailout “exceeds total lending by the International Monetary Fund since its inception after World War 2″.The dangers were heightened in South Africa by the transition last week to the new political dispensation under President Kgalema Motlanthe.On Friday, despite news that finance minister Trevor Manuel would retain his position in the new cabinet, the JSE fell 1,3 per cent by 9h15am and closed down 1,75 per cent.The rand fell against 16 major currencies monitored by Bloomberg last week Chris Hart, the chief economist at Investment Solutions, said that given the current account weakness and the portfolio outflows on the financial account, the rand should have been weaker.”But over the past two months the rand has strengthened against the Australian dollar, the Brazilian real and the Korean won, and it has not done badly against the euro and the British pound.”He suggested that support could be coming from foreign direct investment.”There have been rumours of deals and investors could be buying currency in the market ahead of the announcement,” he said.Business Report”In the month to Tuesday (last week) net outflows from local bonds and equities amounted to R8,3 billion,” he said.”However, when markets reopened after the Heritage Day celebrations on Wednesday, non-residents sold R2,3 billion in local equities and R5,9 billion in South African bonds in one day.”Myburgh said net non-resident flows were last positive in June, when N$2,2 billion was invested in local bonds and stocks.In April net inflows amounted to nearly N$22 billion.Details of the US$700 billion (N$5,7 trillion) rescue package for the faltering US financial system could inject some stability into global markets yesterday, after sharp swings over recent weeks.US legislators were working on the deal on Sunday.Risks remain high, however, as regulators in the major economies grapple with the biggest financial crisis in 79 years.Reuters reported that the proposed bailout “exceeds total lending by the International Monetary Fund since its inception after World War 2″.The dangers were heightened in South Africa by the transition last week to the new political dispensation under President Kgalema Motlanthe.On Friday, despite news that finance minister Trevor Manuel would retain his position in the new cabinet, the JSE fell 1,3 per cent by 9h15am and closed down 1,75 per cent.The rand fell against 16 major currencies monitored by Bloomberg last week Chris Hart, the chief economist at Investment Solutions, said that given the current account weakness and the portfolio outflows on the financial account, the rand should have been weaker.”But over the past two months the rand has strengthened against the Australian dollar, the Brazilian real and the Korean won, and it has not done badly against the euro and the British pound.”He suggested that support could be coming from foreign direct investment.”There have been rumours of deals and investors could be buying currency in the market ahead of the announcement,” he said.Business Report