Johannesburg - Foreigners could return to buying
South African bonds on a net basis once the global crisis abates and they seek out value opportunities, says manager of research at the Bond Exchange of South Africa (Besa), Monica Ambrosi.
This comes on news that foreigners dis-invested from local bonds in 2008 to the unhappy tune of a net R40.731bn after making net purchases of R16.024bn in 2007 and a hefty R30.092bn in purchases in 2006.
Net sales of local bonds were last seen in 2005, but of just R8.4bn.
Ambrosi notes that 2008 sales coincided to a large degree with the financial market crisis that struck in September and October last year.
"There were huge outflows all of a sudden," said Ambrosi. She adds that there is still heightened risk aversion due to the financial crisis, but that conditions have gotten a little better since the heat of the crisis.
She notes that in the first half of the year, the local inflation outlook was also negative and interest rates were rising.
"Since then there has been an improvement in the inflation perspective," she says.
Ambrosi also points out that local investors were far more upbeat on the local bond market than foreigners in 2008.
Data from Besa shows that locals bought a net R73bn on the local bond market, thus providing an overall strong underpin during the year. Bond dealers explain that a lot of these flows were due to local investors buying bonds in favour of rapidly declining equities.
Short and long dated bonds thus all managed to gain ground during 2008.
The short term R153 bond started the year at a yield of 9.370% and proceeded to gain a full 202 points to a current 7.370%. It reached a worst level of 11.890% on July 1 and a best of 7.135% on December 18 as the global crisis and expectations of an actual rate cut set in.
Foreign transactions fickle
The 2016 R157 has also shot 119 basis points stronger in the year from 8.500% in January to a current 7.315%. It reached a worst of 10.865% on July 1 and a best of 7.050% on December 18.
The long-dated 2027 R186, which was not heavily traded, gained 83.5 basis points on the year from 8.110% to a current 7.275%. It hit a worst of 10.635% on July 1 and a best of 6.980% on December 18.
Ambrosi points out that foreign net transactions are quite fickle and tend to fluctuate, but that Besa would like to make the data more user-friendly for the research community.
For example, the central bank net numbers of foreign bond buying or selling is different as they include some transactions not included in the Besa data.
Another issue is that the foreign net position should technically exclude free of value transactions, which amount to R18.225bn and take foreign net sales to a lower R22.506bn than the headline R40.731bn. This category relates to those transactions that do not reflect money actually coming and going.
Current revisions to the data have been necessitated after a study by Besa found that some client codes had been erroneously loaded in the wrong category.
This led to large revisions in the foreign net position, which prior to the revisions amounted to sales of R22.307bn.
Interest rates are expected to come down in the year ahead in tandem with inflation, and this is set to keep investors interested in local bonds. A return of shell-shocked foreigners in search of yield can only be good news in light of a current account deficit just off 8% of GDP.
- I-Net Bridge