Wednesday, October 14, 2009

Foreign investors flock to JSE as confidence in dollar wanes

October 14, 2009

By Ethel Hazelhurst

Nearly R70-billion worth of offshore funds have flowed into JSE-listed companies this year, on a net basis, according to George Glynos, the managing director of market analysis firm ETM.

Non-resident inflows already topped the R67.5bn invested in the local stock exchange in the whole of 2007, Glynos said. And they follow a R57bn outflow last year.

Foreign inflows have helped push the JSE's all share index up 18 percent since the start of the year.

Glynos also said that according to technical analysis, the gold price could reach $1 300 (R9 560) within the next few months. The precious metal, which burst through the March 2008 record of $1 033 a week ago, touched a new record high of $1 068.30 yesterday before retreating to just below $1 060. It is 20 percent higher than at the start of the year.

The JSE and the gold price are beneficiaries of unprecedented levels of liquidity abroad, after the series of monetary and fiscal rescue packages in many economies over the past year.

"Large quantities of funds that have been cautiously sitting on the sidelines in risk averse investments ultimately need to be invested to generate stronger returns," Glynos said. Global investors are seeking yield in emerging markets with a better growth outlook.

Glynos attributed much of the JSE's recent gains to foreign investors because local fund managers, he said, "haven't committed to the equity market in a wholesale manner". He said they were more cautious about "rotating away from risk-averse asset classes such as cash" as interest rates in the money market were still compensating for inflation and offered security in uncertain times.

However, he warned the run up in stock markets and commodity prices did not necessarily reflect optimism about economic fundamentals.

To some extent, they demonstrated a lack of confidence in the US dollar and were a response to "ultra loose monetary policies" abroad.

The dollar's role as the global reserve currency is in doubt as central banks round the world increasingly shift into other currencies, particularly the euro. Investors are also following suit.

Nedbank Capital said yesterday that the dollar was near a 14-month low against a basket of major currencies.

RMB commodity analyst Josina Oliphant said gold responded more to dollar weakness than most commodities.