Real Estate Investor Magazine South Africa April 2016 | Page 40

EXCHANGE RATES

Striking while the

Iron is HOT!

The Rand and the Predictably Irrational Investor Behaviour
BY JAMES PAYNTER

I

n December, the Reserve Bank reported that
for the Quarter to September 2015, the Net
Investment Position had turned positive for the
first time since 1956!
This meant that for the first time, South Africans
owned more assets offshore than foreigners owned in
South Africa.

and local and foreign investment behaviour going
forward? Is there any hope for a turnaround?
A look at history will often give us a picture for the
future, the undeniable fact being that history does
repeat itself, as us humans have this fascinating
tendency to make the same decisions and take the
same actions in similar circumstances.

Included in this data was that:

The problem tends to be learning from
history…

• For the first time since 2008, foreign investment
had decreased versus the previous quarter.
• Investment offshore by residents had increased
sharply by 4.6% during this same period.
The result was a change from a net foreign liability
position of R131bn to a net foreign asset position
of R113bn – a net outflow of R244 billion for the
quarter!

Which being interpreted means:

Both South Africans and foreigners had decided it
was time to run for the door.
Of course, this was the same quarter that saw
the Rand make new record price highs (value lows)
against the Dollar.
But it was before Fitch’s downgrade …and before
Nenegate!
Based on feedback from forex brokers involved
in the business, December and January saw record
outflows compared with previous months, as blind
panic set in with the Rand’s collapse to almost R18
against the Dollar, R20 against the Euro and R26
against the Pound in early January.
Importantly, what does this mean for the Rand

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APRIL 2016 SA Real Estate Investor

Let us take a look at some recent …

The chart shows the last 10 years of investment
behaviour (foreign assets owned by SA residents less
SA assets owned by foreigners) plotted against the
Dollar/Rand exchange rate over this same period.

As they say, a picture is worth a thousand
words!
As can be seen, when the Rand was strong back
in 2007 and again in 2011 (blocked in green), the
majority of investors (both South Africans and
foreigners) were motivated to rather invest in South
African assets than hold investments offshore. In
doing so, they chose the worst time possible as the
Rand bottomed out and weakened steadily thereafter
for several years.
And when the Rand was extremely weak, as in 2008
(blocked in red), this prompted the same investor herd
to panic and convert their South African assets to
foreign-held investments, once again choosing exactly
the wrong time to do so, as the Rand peaked and then
strengthened steadily for the next few years.
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