Citi expects South Africa reforms to drive stock outperformance

Foreign investors have offloaded a net $6.1bn of South African stocks this year, according to JSE data compiled by Bloomberg, though the rate of outflows has slowed in November to just $62m month-to-date.

Citigroup expects South African equities to overcome recent weakness and outperform emerging market peers, as the new government’s pro-reform agenda tempers headwinds linked to the US election outcome.

Citi’s head of African markets George Asante noted that South Africa’s coalition government, which took office following elections in May, was prioritising economic growth, which alongside lower interest rates should play in markets’ favour. While the Johannesburg bourse and the rand have endured steep losses since Donald Trump’s US election win on November 5, Asante said a stable political environment and the relative ease of doing business are positives for South Africa.

“Market sentiment is that there is a clear plan to return to sustainable growth,” Asante told Bloomberg in an interview. That’s “boosting confidence in South Africa, and it’s going continue for a while.”

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As interest rates fall in South Africa and most other countries, there would be more “clarity in pricing new investments,” Asante added.

Even after the recent setback, the FTSE/JSE Africa All Share Index is up 11% this year in dollar terms, outpacing MSCI’s emerging equity gauge. A fresh sentiment boost came last week as S&P Global Ratings lifted the outlook on the country’s credit score to positive, citing political stability and new-found reform impetus. That’s lifted the rand and stock markets, while last week’s $3.5 billion sovereign Eurobond sale was over-subscribed.

Foreign investors have offloaded a net $6.1 billion of South African stocks this year, according to JSE data compiled by Bloomberg, though the rate of outflows has slowed in November to just $62 million month-to-date.

Across the African continent, Asante does not expect the US election outcome to heavily impact interest rates. Absent a dramatic shift in US rates, African “rate normalisation” will continue, he predicts.

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