Zuma who? It’s business as usual for investors

Foreign investors gorged on a JSE bond market bonanza last week as the rand tumbled and bond yields surged while South Africa’s latest political drama unfolded.

They bought a net R11.2 billion ($835 million) of South African bonds in the week ending March 31, more than double the previous week and the most since the five days ending June 24, JSE data shows. The inflows continued even after President Jacob Zuma fired Finance Minister Pravin Gordhan on Thursday.

Zuma’s Cabinet changes raised concern about the country’s fiscal path and credit ratings, sending the rand sliding to its worst week since December 2015 and benchmark bond yields to the highest since January. That makes them a buy, said Phoenix Kalen, London-based director of emerging-market strategy at Societe Generale.

“Despite the fraught political situation in which South Africa currently finds itself, dynamics past the immediate horizon favour outperformance in the country’s assets,” Kalen said in a note on Friday in which he advised buying the country’s 2048 rand bonds.

“Although we believe sovereign rating downgrades are likely over the near term, we do not anticipate substantial further market upheaval when or if they materialise.”

South Africa may also have benefitted from emerging-market bonds that surged after the Federal Reserve reassured investors about the path of US rate increases.

While Zuma’s Cabinet reshuffle has raised the political stakes, the nation’s yields — the highest among investment-rated sovereigns — are rich enough to compensate for the risks, Sergio Trigo Paz, head of emerging-market debt at BlackRock, said last week. – Bloomberg

Despite fraught current politics, wider dynamics favour outperformance in the country’s assets.

Phoenix Kalen Emerging market strategist Societe Generale