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We take a look at the cumulative net sales/purchases of South African shares and bonds by foreign investors. It seems like foreigners have a greater appitite for South African bonds than they do for South African shares listed on the Johannesburg Stock Exchange (JSE).
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From January 2012 to April 2016 foreign investors have been net purchasers of South African interest market instruments (largely bonds) to the tune of R159billion). This at a time when they have been net seller of shares over the same period to the value of roughly -R32billion.
A large divergence between the behaviour of their buying and selling of shares and bonds can be seen in recent months (the highlighted green area). Clearly foreign investors like the higher yields on bonds (caused by a range of factors, including hiring and firing weekend special finance minsters, increased risk in investing in SA leads to higher yields that needs to be paid to lure investors). On the flip side it suggests that foreign investors are not very optimistic about the short term returns that can be expected from shares listed on the Johannesburg Stock Exchange. As |
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Is foreign money the "smart" money? Should local investors take notice and follow a similar plan of action? Will bond yields outperform the stock market in the short run? Based on the performance of the JSE so far this year, and looking at the trading environment of companies in SA, it is perhaps not a bad idea to move money into high yield paying bonds instead of keeping them in shares that might be going nowhere slowly for the foreseeable future.
It remains our view that a well balance investment portfolio consisting of shares, offshore exposure (stocks and currencies), bonds/money market, well managed unit trust or two and investment properties should all form part of a well diversified investment portfolio.