Foreigners piled into South African debt in the first quarter on optimism new President
Cyril Ramaphosa would undo the economic havoc wreaked by his predecessor,
Jacob Zuma. But the flows started dwindling in April before turning into a flood of sales,
reaching a net R56.5bn ($4.2bn) since the beginning of May, according to JSE data.
The outflows occurred against the backdrop of a broad sell-off in
emerging-market assets sparked by a stronger dollar and rising US
rates, which weakened the case for high-yielding investments. They’re a
concern because South Africa depends on portfolio inflows to finance its
current-account deficit, which
swelled to the widest in two years in the first quarter.
And while South Africa is caught in the wave of emerging-market
selling, the outflows highlight the country’s vulnerability, according
to
Tshepiso Moahloli, chief director for liability management at the
Treasury. Weak growth, high unemployment and burgeoning fiscal and
current-account shortfalls make it less attractive as an investment than
some of its peers.
Saving grace
“If investors start looking at each country specifically and we are
at a stage where we have low investor confidence and business
confidence, the impact can be amplified,” Moahloli told reporters in
London on Friday. “Currently, it’s just a broad emerging-market issue.
But yes, it is a concern.”
The rand has wiped out all its gains that came with Ramaphosa’s
ascent to the presidency and was 1.2% weaker at R13.6015/$ by 17:10 in Johannesburg on Monday. The yield on benchmark
government 2026
bonds climbed four basis points to 8.90%, after retreating in the
previous three trading days from a six-month high.
South Africa’s saving grace is a local investment community
overseeing about R2.2 trillion, as well as a large banking industry
looking to shore up capital. Demand from domestic investors has kept a
lid on yields, Moahloli said.
Most selling of South African bonds in May was driven by “fast-money”
investors cutting long positions in the debt, Morgan Stanley said in a
report dated June 21. Index-tracking funds, by contrast, added to
holdings, according to Morgan Stanley’s London-based fixed-income
strategist
Min Dai.
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