South Africans are missing the offshore boat

South Africans are taking their time responding to tantalising foreign investment opportunities, despite the strong local currency and the government's encouragement via the significant liberalisation of foreign exchange controls.

Research by Plexus Asset Management, which calculates implied inflows and outflows to and from South African rand-denominated unit trust funds, shows that over the 12 months ended December 31 2010, domestic funds experienced an inflow of R53.5-billion (94%) out of a total of R56.9-billion - with only R3.4-billion (6%) going to foreign funds.

However, local investors run the risk of getting priced out of the domestic equities market if, as predicted, foreigners switch their attention, and dollars, from South African bonds to the country's shares.

Net foreign purchases of domestic equities is already at R3.7-billion in the first 10 days of the trading year (January 3 to January 13).

As a result, the JSE's All Share index is only 700 points below its all-time high.

Foreign capital is flowing into the local bourse in anticipation of a widely expected rise in commodity prices in the course of 2011 - and this is reflected in the recent strong performance of the resource counters on the JSE.

Some analysts, however, believe that the general over-valuation of the market masks significant value opportunities - especially in financials, and even in the listed property sector.

Data by I-Net Bridge shows that listed property outperformed both the bond and equity markets last year. Listed property returned 29.6% in 2010, whereas the All Share and All Bond indices posted total returns of 18% and 15%, respectively.

Evan Jankelowitz, director at Sesfikile Capital, believes the listed property market still has more upside potential than the bond market, despite the former's strong performance in 2010.

"We favour the property market going forward," he said. "We did not see as much foreign cash flow into listed property compared with the bond market, primarily because of a liquidity issue and the level of free float. Listed property also still has underlying growth compared to bonds."

Adrian Saville of Cannon Asset Managers said: "It's probably fair to say that equities are not reasonably valued; however, this masks sector divergence, with some sectors overvalued and others quite cheap.

"Among the super-sectors we're optimistic about financials. Old Mutual and Investec have captured our attention."