Here’s how foreign investors, markets are reacting to the unrest in SA

South Africa has been in a state of turmoil in recent days as President Cyril Ramaphosa appeals for calm amidst widespread violence and looting. Despite his pleas, the situation continues to escalate with reports of arson and serious criminal activity. The unrest has not only caused chaos on the ground but has also sent shockwaves through the financial markets, prompting concerns from both foreign and local investors. CNBC Africa spoke to Peter Montalto, Head of Capital Markets Research at Intellidex, and Tilman Kolb, Emerging Markets Analyst at UBS Global Wealth Management CIO, to gain insights into how foreign investors are reacting to the situation. Montalto highlighted that while the currency remains stable, the focus has shifted to the potential downside risks that have now been brought to the forefront. Foreign investors, as well as local corporates, are closely monitoring the security situation in the country, raising questions about future scenario planning and the overall attractiveness of South Africa as an investment destination. Kolb echoed these sentiments, emphasizing the challenges posed by the riots in conjunction with other global factors such as the US inflation surprise. The uncertainty surrounding the economic outlook and monetary policy in the US adds another layer of complexity to the situation. Both experts agree that the current environment has put South Africa's investment case into limbo, with the potential for more challenges ahead. The discussion also delved into the issue of foreign direct investment (FDI) and 'hot money' entering the country's equities and bonds markets. Kolb suggested that while FDI could be impacted in the long term, the immediate concern lies with short-term capital flows and market volatility. Montalto raised concerns about deeper issues affecting FDI, pointing to recent incidents, such as the assassination of a General Manager at Richard's Bay Minerals, as indicators of broader security and governance challenges. The conversation then turned to the construction sector mafia, a topic that has been under the radar for years. Montalto shed light on the pressure faced by companies to make protection payments and the growing fear among investors regarding project security. Despite the ongoing unrest, there have been discussions about a potential renaissance in South Africa driven by long-overdue reforms. The narrative of fixing legacy issues, such as Eskom and SAA, has sparked optimism among some investors. However, the experts urge caution, noting that the reform momentum needs to be sustained to translate into a positive growth outlook. The role of Finance Minister Tito Mboweni in steering the reform agenda was also discussed, with Montalto emphasizing the need for a balanced approach to various reforms impacting the economy. The interview concluded with a reflection on the broader political implications of the unrest, including its impact on internal dynamics within the African National Congress and upcoming municipal elections. The experts highlighted the challenges facing President Ramaphosa in navigating the fallout from the unrest and maintaining political stability. In terms of South Africa's investment case post-crisis, Kolb advised a cautious approach, noting that while the rand may see short-term fluctuations, the broader economic outlook remains uncertain amidst changing global trends. Overall, the road to recovery for South Africa's economy will hinge on sustained reforms, political stability, and investor confidence.