Pension funds cut holdings in city bonds

PENSION funds have cut their holdings in local government bonds to the lowest level in nearly four-and-a-half 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 government bonds, but National Treasury numbers show their share has fallen to 27.2% as at the end of April – the lowest since December 2012.

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

The rest are held by banks and other financial companies.

“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.

“We are underweight nominal bonds and duration on South African bonds,” said Wikus Furstenburg, portfolio manager at Futuregrowth.

“This is certainly a problem but not quite yet a crisis.

“There is a possibility that National Treasury doesn’t take any hard steps and continues to borrow more, that’s what leads to a debt crisis and higher debt to GDP ratios,” said Investec co-head of fixed income Nazmeera Moola of National Treasury’s funding fix,

Isabelle Mateos, BlackRock’s chief multi-asset strategist, said: “South Africa is not one of our favourites, and that has to do with political and policy uncertainty.

“We are not actively shorting South Africa but the upside is very limited.”