South Africa’s Treasury Flush With Cash As Bond Buyers Return

Written by Kevin Mwanza

South African bond sale has tripled in the first quarter of the this year compared to the same period last year helped by foreign investors returning to the market on the back of improved confidence in the country’s institutions and inline with a rebound in emerging markets.

A Reuters report said investors had regained faith in South African institutions after a constitutional court ruling against President Jacob Zuma at the end of March and the re-appointment of former finance minister Pravin Gordhan.

“Having Pravin Gordhan back in control, and having this noise around Nkandla and Jacob Zuma, is showing the market that South African institutions are still strong,” Investec fixed income portfolio manager Vivienne Taberer told Reuters.

Data from the Johannesburg Stock Exchange (JSE) showed foreign investors bought a net 30 billion rand ($2 billion) worth of South African debt in the first three months of 2016, three times the 10 billion rand invested in the same period last year.

Bondholders have recouped losses they made in December when Zuma unexpectedly fired the finance minister Nhlanhla Nene and replaced him with an unknown backbencher, triggering a dramatic sell-off in the markets, before he was replaced by Gordhan in less than a week.

According to Financial Review, emerging-market stocks and bonds have had the best quarterly rally in seven years. This is expected to continue in coming months as the Chinese economy stabilizes, commodity prices rebound and the US Federal Reserve signal it will go slow on raising interest rates.

Foreign investor interest in South African bonds swung sharply from risk-off to risk-on in the first quarter of this year, bringing with it a quarterly net foreign buying of $1.13 billion, led by net purchases of about $1 billion last month, one of the highest monthly levels in six years, BDlive reported.

A $1.25 billion 10-year paper offered in April was two times oversubscribed, Reuters reported.

“We expect markets – especially the bonds, currency and banks – to track the ebbs and flows of Jacob Zuma’s fortunes,” BNP Paribus Securities South Africa analyst Nic Borain told Reuters.