Pen­sion funds cut their hold­ings in govt bonds

The Star Early Edition - - BUSINESS REPORT -

SOUTH African pen­sion funds have cut their hold­ings in lo­cal gov­ern­ment bonds to the low­est level in nearly 4½ years, be­cause of po­lit­i­cal tur­bu­lence in the coun­try.

But yield-hun­gry for­eign in­vestors are prov­ing less hes­i­tant.

Do­mes­tic pen­sion funds have his­tor­i­cally been the largest in­vestors in South African gov­ern­ment bonds, but Na­tional Trea­sury num­bers show that their share has fallen to 27.2 per­cent as of end April – the low­est since De­cem­ber 2012.

Con­versely, for­eign in­vestors have been buy­ing, ac­cord­ing to data from the Jo­han­nes­burg Stock Ex­change, and now hold 39.4 per­cent of the bonds – their high­est level on record.

The rest of the bonds are held by banks and other fi­nan­cial in­sti­tu­tions.

Lo­cal funds have steadily de­creased their hold­ings in gov­ern­ment debt since Jan­uary 2016, af­ter Pres­i­dent Ja­cob Zuma changed fi­nance min­is­ters twice in one week at the end of 2015.

The moves led to a sharp sell-off in the rand cur­rency and bonds.

But the po­lit­i­cal risks were height­ened even more in March this year when Zuma dis­missed re­spected fi­nance min­is­ter Pravin Gord­han, lead­ing to credit rat­ings down­grades to “junk” sta­tus by S&P’s Global Rat­ings and Fitch.

Moody’s, whose Baa2 rat­ing is two notches above “junk”, put South Africa on review for a down­grade.

“Lo­cals are def­i­nitely more wor­ried about the bonds and the rand be­cause of the (lat­est) cab­i­net reshuf­fle.

“They’re more cau­tious about hav­ing big bond hold­ings,” Ash­bur­ton In­vest­ments port­fo­lio man­ager Wayne McCur­rie said.

In­vestors fear pol­icy steps to spur on the econ­omy and keep debt in check are tak­ing a back seat to cor­rup­tion scan­dals and the jostling for po­si­tions as the rul­ing ANC pre­pares to elect new lead­ers in De­cem­ber.

In­deed, leaked doc­u­ments re­leased by South African me­dia yes­ter­day al­leg­ing im­proper deal­ings in gov­ern­ment con­tracts were seen heap­ing more pres­sure on Zuma.

“We are un­der­weight nom­i­nal bonds and du­ra­tion on South African bonds,” said Wikus Fursten­burg, port­fo­lio man­ager at Fu­ture­growth, which has about R170 bil­lion of as­sets un­der man­age­ment and ranks as one of Africa’s largest money man­agers. – Reuters

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