By Xola Potelwa
JOHANNESBURG, July 6 (Reuters) – South African bond yields
hit record lows this week as foreigners piled into emerging
market debt but they are looking vulnerable to a sudden reversal
amid fears ratings agencies may downgrade the continent’s
biggest sovereign.
The trigger for the market turning looks likely to come from
policy uncertainty caused by behind-the-scenes political
posturing ahead of an internal election in the ruling ANC in
December, analysts said.
Mining policy – the subject of much debate after a major ANC
conference last week – is under particular scrutiny, and local
dealers say they are preparing for a stampede for the exit by
the 50 billion rand, $6.2 billion, of foreign cash that has
sloshed into the bond market so far this year.
“The door won’t be big enough,” one Johannesburg-based
dealer said.
Although growth in the mining sector has not kept pace with
the rest of the economy since the end of apartheid in 1994, it
still accounts for 8 percent of output, and the government has
identified it as vital to creating jobs.
“The lack of clarity with regards to future policies in key
economic areas – and the mining sector is a key area of South
African economy – at the moment is certainly something that
weighs negatively on the rating,” said Konrad Reuss, Sub-Saharan
Africa managing director of Standard Poor’s.
Despite such concerns, yield-chasing foreign cash has
continued to come into South Africa, with inflows so far this
year up 60 percent on the same period in 2011.
The 2015 and 2021 bonds, the most
popular debt last month, hit fresh record highs in the last two
days, pushing yields to 5.91 and 7.07 percent respectively, and
look set to go lower as expectations of interest rate cuts rise.
Continued…
