Money is flooding out of South Africa – and it won’t stop any time soon

Coronation Fund Managers – one of South Africa’s largest asset managers – says the South African savings industry is seeing widespread outflows and will continue to lose money over the next several years.

The group said that the year ended 30 September 2023, a continuation of the challenging environment, with weak returns across domestic asset classes highlighting the weak performance of the South African (SA) economy.

“Persistent headwinds have negatively impacted the South Africa savings pool, which has experienced net outflows for over a decade,” the group said.

Although total assets under management increased by 5% y/y at R602 billion (30 September 2022: R574 billion), the average assets under management (AUM) was flat y/y at R620 billion (30 September 2022: R621 billion).

Net outflows for the period amounted to 10% of average AUM, the group noted.

“This can largely be attributed to both industry-wide outflows from the global emerging markets asset class, as demand declined after a decade of weak performance, and to the contracting South Africa savings pool,” the group said.

“Management believes that outflows from the domestic savings industry will continue as formal employment remains muted, households come under increasing pressure, and investors continue to externalise their savings.”

However, the group believes that the relaxation of Regulation 28 – which will allow asset managers to increase offshore exposure from 30% to 45% – will be a positive for the industry and investors, allowing for greater diversification.

Financials

Amidst the strain felt across the industry, the group said that its total operating expenses for the period were up 8% y/y – excluding the roughly R800 million tax dispute with the South African Revenue Service over the group’s offshore operations.

“We are encouraged that the Constitutional Court has agreed to hear our case and anticipate that any outcome will be in the second half of the 2024 calendar year. This dispute has no material impact on our long-term sustainability, and we remain a well-capitalised and successful business,” the group said.

Fund management earnings per share (FMEPS) are down 4% when not accounting for the tax matter (down 57% when including the impact of the tax matter).

The group’s basic headline earnings per share also dropped to 182.9 cents (FY22: 366.3 cents), whilst the final dividend per share also dropped to 165 cents (FY22: 386 cents)

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