Data from the Institute of International Finance (IIF) on Friday showed that South Africa had a good start to the year, accounting for the largest share of $31.7billion (R450.7bn) of net capital flows to emerging markets (EM) in January.
The Washington-based IIF in a research note said market sentiment towards EM has swung a lot more positive recently, powered by the dovish shift from the Fed, de-escalating China-US trade tensions, and fading anxiety over global growth. “In particular, large flows into South Africa ($16.4bn) and India ($13.3bn) were behind the surge in overall inflows,” Jonathan Fortun, an economist, and Tariq Khan, a researcher, at the IIF, said of the organisation’s recent findings. “On the other hand, Saudi Arabia and Russia continue to weigh on our tracker, posting outflows of $12.7bn and $8.6bn respectively in January.
South Africa had inflows of just $800 million in December. Emerging markets had a horrible 2018 when crises in Turkey and Argentina – coupled by surging borrowing costs – thumped riskier assets around the world. However, a dovish turn by the US Fed last month saw investors pile back into riskier assets in recent weeks.
In December Beijing and Washington agreed to a three-month truce in their bitter trade war. The temporary truce ended on Friday. However, President Donald Trump lifted the ultimatum to increase tariffs on Chinese products after he said significant progress in the latest round of negotiations between the globe’s two biggest economies had been made.
IIF said EM would struggle with political risk perception with elections in several countries, including South Africa, Argentina, India, Indonesia and Ukraine set for this year.
“This means that external – as much as internal – political risk perceptions for our survey respondents have been exacerbated,” IIF said.
“With the increased volatility in markets and yield movements, EM banks will be looking closely at changes in the political context.”
Meanwhile, the International Monetary Fund (IMF) on Friday said that South Africa’s education system did not meet international standards, despite generous financial support from the government. “The bi-modality of South Africa’s education system is perpetuating economic inequality through employment and earnings channels,” researchers from IMF said.
“Poverty incidence rates and unemployment rates are distributed according to levels of education and race.”
Finance Minister Tito Mboweni last month said learning and culture will receive R1.2trillion in the next three years. The largest allocation in the medium-term.