Domestic concerns trump Brexit falls for South Africa investors

Domestic concerns trump Brexit falls for South Africa investors

The UK still represents a strong investment destination for South Africans more concerned over the economic woes their own country continues to suffer.

Summary:

  • The UK still holds of a position of investment strength over South Africa
  • Investor concerns over the uncertainty caused by Brexit less significant than the ongoing concerns over the future economic outlook for South Africa
  • An immediate investment opportunity in Britain created by the EU referendum could prompt more South Africans to move money out of the country

The short-term uncertainty created by a vote for Brexit pales in comparison to the sustained economic strife currently being experienced in South Africa.

That’s the message published by the Future Currency Forecast. While the pound has suffered losses following the UK’s vote to leave the European Union, the exchange rate still remains “bullish” following the poor economic performance which only recently saw South Africa narrowly avoid being downgraded to junk status.

Many continue to fear South Africa is heading into recession. Consumer confidence figures fell by two points on a quarterly basis last month, while residential property activity in South Africa fell following rising sentiment earlier in the year.

The article also states that traders in the country are currently predicting turmoil for South Africa’s retail sector. There’s widespread concern over companies’ reliance on borrowing, which could leave many vulnerable should the economic performance fall further.

In June ratings agencies Standard and Poor’s and Fitch spared South Africa from junk status, but its growth prediction was lowered and both moved to warn the country’s economists that unless significant government measures are introduced by the end of the year, further reviews will be held in December.

The UK is the largest international booking centre for South African investors, with the pound a long-established rand hedge. While the Brexit has created some immediate uncertainty in the UK, Standard and Poor’s believes Britain will return to growth in 2018.

Furthermore, the immediate losses suffered by the pound has created a currency for investors, with assets such as UK property becoming more affordable in international terms.

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