At the rate foreign investors are deserting South African stocks, the country’s main index should be in decline. It’s not, thanks largely to two shares that draw their strength from Hong Kong and Zurich.
The JSE’s benchmark is up 0.6% this year, well short of the 16% advance in the MSCI Emerging Markets Index, after foreigners dumped a net R77bn of local shares.
That picture would have been worse if it weren’t for Naspers, the largest weighting in the index and biggest shareholder in Tencent, and Zurich-traded luxury retailer Richemont, said Shaun le Roux, a money manager at PSG Asset Management in Cape Town.
“The share prices of the two JSE heavyweights that have contributed most of the year’s returns, Naspers and Richemont, are not determined on the JSE,” said Le Roux, who helps oversee R33bn at PSG. “Naspers tracks the share price of Tencent in Hong Kong and Richemont’s primary listing is in Switzerland.”
Credit-rating downgrades, a moribund economy and political turmoil swirling around the presidency of Jacob Zuma have weighed on South African stocks in 2017.
The foreign sales are larger than the R70bn offloaded a year earlier, figures from the stock exchange show. The selloff compares with inflows of R26bn by this point in 2015, and purchases of R20bn in 2014. Foreigners were net buyers by this stage in each of the five years preceding that.
“Foreign sentiment toward South Africa equities is poor and shareholder registers indicate widespread selling by foreign investors of most JSE-listed stocks over the past few months,” said Le Roux.
Naspers, which constitutes 17% of the 166-member index, has gained 28% in 2017 as Tencent, of which it owns a third, surged almost 50% in Hong Kong.
The stake in China’s largest Internet company has grown in value to about R1.5 trillion.
Richemont, the second largest index member at 8.5%, has climbed 18%. With its focus on global luxury brands like Baume & Mercier and Montblanc, Richemont is less at risk from the South African economy.
The outflows present an opportunity for domestic investors as valuations drop, Le Roux said. The 14-day RSI on the main Johannesburg index fell below 30, a level that indicates stocks may have fallen too far and be poised for a rebound, on 6 June for the first time since September.
“In our experience, foreign selling amid poor sentiment often provides a very good opportunity to buy good businesses at attractive prices for our clients,” he said. — Reported by Neo Khanyile, (c) 2017 Bloomberg LP