South Africa’s financial markets have been hit by a sharp foreign sell-off, with non-residents dumping a net R41.3 billion in government bonds last week. JSE settled trade data shows it was the biggest weekly outflow recorded since at least 2019.

The move marks a dramatic reversal from the start of 2026. In the first two months of the year, foreign investors were net buyers of R28.6 billion in South African debt, according to National Treasury data cited in the report.

Middle East Conflict Adds Pressure

The sell-off came as war involving Iran shook global markets and pushed oil prices sharply higher. That has raised fresh concern about inflation in South Africa, which imports oil and remains exposed to global price spikes.

South Africa’s 10-year bond yield has jumped more than 90 basis points since the conflict began, although it dipped to 8.96% on Tuesday. At the same time, the FTSE/JSE All Share Index has fallen hard, leaving local stocks down 10% from their late-February peak and 15% in US dollar terms since 27 February.

Why Investors are Pulling Back

Analysts say the local market had become crowded after a strong rally. South African bonds had surged as investors backed the coalition government’s economic programme, improving fiscal outlook and plans to reduce debt issuance. Foreign investors lifted their share of fixed-rate bond holdings to 32% by the end of February, up from 30% a year earlier.

Deutsche Bank warned that caution is needed until there is more certainty on the geopolitical outlook. Invesco’s Asad Bhatti said heavy investor positioning and large profits made it easier for traders to exit quickly.

Not Everyone is Running

There are still signs of confidence. Demand at Tuesday’s weekly government bond auction remained firm, with primary dealers placing orders for 3.5 times the amount of debt on offer. Bramshill Investments’ Arif Joshi said the weakness could present a buying opportunity, pointing to South Africa’s credible central bank, inflation-targeting framework and fiscal consolidation story.

Still, the risk is clear. If oil prices stay high and the conflict drags on, markets now expect the South African Reserve Bank to hold back on rate cuts, with pricing shifting toward a possible 25 basis point increase by year-end.