SA investments are looking attractive

Lesetja Kganyago, governor of the South African Reserve Bank (SARB), has punted South African investments to US investors in New York this week.

Kganyago spoke in New York after the signing of a new memorandum of understanding between the Johannesburg Stock Exchange (JSE) and the New York Stock Exchange (NYSE).

The two bourses have agreed to collaborate on dual listings, exchange-traded funds and digital assets.

The agreement will foster closer ties between the two markets and will increase economic partnerships and trade opportunities, Kganyago said. He took part in the NYSE closing bell ceremony on the bourse's podium on Monday.

While referring to an "unusually challenging time for the global macro-economy" – the IMF predicted on Tuesday that a third of the global economy is headed for contraction this year or in 2023 - he predicted that foreign investors would re-enter South African markets due to better real growth differentials and higher yields.

Kganyago said recent interest hikes in South Africa "will lead to stronger investment rates over time", and that South African bonds will benefit from a sound underlying financial structure and a long maturity.

"This is an important reason why our yield curve is steep: long-term debt is genuinely being held, in volumes, by private investors, and it is priced accordingly.

"The point is: the news is in the price, and it is an attractive price. It is not an artificially low price, held down by policies that we cannot sustain or that are inconsistent with our economic conditions."

Kganyago added that South Africa’s financial markets are deep, robust, and well integrated with world markets. Financial system assets are nearly 300% of GDP, roughly three times the emerging market average.

Attractive

He added that the rand is another reason the prices of South African assets are attractive, saying that the Reserve Bank is "very tolerant of exchange rate fluctuations."

"This is because we have low levels of foreign exchange debt, and we have inflation expectations that do not react strongly to exchange rate movements.”

"This means the currency is free to adjust to global conditions, and when it depreciates, as it has done recently, it makes South African assets very attractive in foreign currency terms. You could say this is a strategy of attracting the smart money: when the currency moves a lot the smartest people buy, and this helps reverse the outflows.

"He says the investment environment in South Africa will continue to improve as governments "moved firmly back into a trajectory focused on sustainable fiscal policy", along with a strict monetary policy to reduce inflation.

Kganyago is pushing to lower South Africa’s inflation target from 3% to 6% currently, and this week said that it would deliver better economic results.

"I hold firmly that a better inflation target is like the example of a US$100 bill lying on the sidewalk, waiting for us to believe our eyes and pick it up."

Kganyago said moving faster on the reform of the energy sector and other structural reforms would make South Africa’s investment environment more attractive to domestic and foreign capital.-Fin24