By Dylan Bettencourt
- Foreign investors sold R41.3-billion in South African government bonds last week, the biggest sell-off recorded in at least six years.
- The sell-off weakens the rand, pushing up the cost of imports like oil, medicines and electronics for ordinary South Africans.
Foreign investors pulled R41.3-billion out of South African government bonds last week. It is the biggest sell-off in at least six years.
A conflict in the Middle East has pushed the price of oil above $100 a barrel. Higher oil prices push up the cost of fuel, food, transport and electricity. That makes inflation harder to control, and foreign investors move their money elsewhere.
It is a sharp turnaround. In the first two months of this year, those same investors had put R28.6-billion into South African bonds. The government had been managing its money better, and inflation was cooling. The conflict changed that, BusinessTech reported.
The Johannesburg Stock Exchange (JSE) has dropped 10% since late February. In US dollar terms, South African stocks are down 15% since 27 February, making them among the worst-performing in the world.
When investors pull money out, the rand weakens. A weaker rand makes imports more expensive, including oil, medicines and electronics.
The South African Reserve Bank (Sarb) may have to stop cutting interest rates, or even raise them. Higher rates mean bigger monthly payments on home loans and car finance. Markets are now pricing in a possible 0.25% rate hike.
Not everyone is pulling out. “I’m going the other way, adding South African government bonds into this weakness,” said Arif Joshi, a portfolio manager at Bramshill Investments. He believes the Sarb is credible and South Africa is still on a positive path.
But Philip Fielding, a fund manager at Fidelity International in London, urged caution. “It’s not in their nature to step into the bond market, and so far the flows are orderly,” he said.
Pictured above: The rand lost value as foreign investors pulled billions out of South African bonds.
Image source: AI generated
