The historical role of foreign equity portfolio capital in South Africa

Abstract

The role of foreign equity investors on the Johannesburg Securities Exchange (JSE) has a chequered history. The capital provided by such investors has proved to be volatile at times, but such capital has a long history, and has often proved to be crucial. Since the early 1990s there has been a resurgence in the flows of foreign equity portfolio capital into South Africa, which has played a key part in helping the country to finance deficits on the current account of the balance of payments. However, some analysts have been warning that the local economy is vulnerable to an emerging markets inspired sell-off of local equities by foreigners at some stage, while left wing elements such as Cosatu allege that foreign equity inflows onto the JSE are highly speculative, and have helped to create an environment in which the rand is overvalued leading to job losses in areas such as the manufacturing sector.