Currency traders may have taken heart from the South African Reserve Bank’s first interest-rate hike since early 2016 on Thursday, but foreign investors reacted by fleeing the country.
Even as the rand strengthened after the rate decision, leaving it poised for its best month this year, outflows from South African markets soared. Foreign investors sold a net 8.6 billion rand ($620 million) of equities and local-currency bonds, the most since May 9, according to data from the Johannesburg Stock Exchange. That’s the sixth-highest daily total over the past decade.
The bulk of outflows — 6.4 billion rand — happened in the stock market. Some investors were taken aback by the hike and its possible impact on consumer demand in an already struggling economy.
Foreign bond investors, meanwhile, were capitalizing on the gains they’ve enjoyed this month — rand securities have returned 11 percent in dollars, the most in emerging markets after Turkish lira debt. They’re also wary about the economy’s prospects, according to Investec Bank Plc.
The outflows were “mostly attributable to profit-taking,” said Julian Rimmer, a trader at Investec in London. “Rand bonds and the currency have had a good run and the market probably got ahead of itself. The equity market is demanding tangible evidence of economic improvement and the SARB’s announcement yesterday would have done nothing to bring this forward. Longer-term nervousness and uncertainty, surrounding land reform and political tensions, still linger.”