Foreigners dumped billions in South African bonds in the days before the elections – but now they are piling back in
- Foreigners dumped billions in South African bonds and shares in the run-up to the national elections, new figures from the JSE show.
- But they started buying bonds straight afterwards, and were the net buyers of R372 million on Thursday.
- The rand was one the best performing emerging market currencies on Friday
- For more, go to Business Insider SA.
The latest numbers from the JSE show that international investors dumped billions in South African government bonds in the run-up to the elections.
International investors were net sellers of R4.2 billion in South African government bonds in the four trading days before Wednesday.
But they started piling back into South African government bonds straight afterwards - despite a $2 trillion global market sell-off amid fears of a global trade war
On Thursday, the first day of trading following the national elections, international investors were net buyers of R372 million in local bonds.
South African government bonds started rallying, and on Friday extended gains, indicating that international buying probably accelerated. The government ten-year R186 bond was last trading at 8.45%, gaining a percent so far on Friday.
South Africa is now also one of the only major government bond markets that have posted gains for the past year.
Demand for bonds was bolstered by the election results, which have been in line with forecasts - perhaps even more positive than investors expected, says Edgar Mafoko, portfolio manager at FNB Wealth and Investments.
An Intellidex survey of South African and overseas professional investors showed their consensus expectation was for the ANC to get 57%, followed by the DA (21%) and the EFF (11%).
With 83% of votes counted, this was almost exactly what transpired – except that support for the EFF (10%) is currently slightly lower than expected.
International investors are seeing value in local government bonds that offer decent real yields compared to other markets, says Mafoko.
Since the start of April, foreigners have been net buyers of almost R1.6 billion in South African government bonds.
The rand also strengthened by almost a percent to R14.19/$ on Friday. As recently as last week, it was trading above R14.50.
The rand was one the best performing emerging market currencies on Friday in part due to signs of political continuity domestically, says Lukman Otunuga, research analyst at FXTM
The post-election gains followed a sharp slump in global markets, amid a new standoff between China and the US.
Markets suffered large losses ahead of the US government's decision to increase tariffs from 10% to 25% on $200 billion (R2.8 trillion) of Chinese goods on Friday. The duties span more than 5,700 product categories, from soy sauce to rat poison and televisions to mattresses.
But markets turned higher on Friday after US President Donald Trump received a "beautiful letter" from Chinese President Xi Jinping and called for the two countries to cooperate on a trade deal.
See also: Stocks are rallying on hopes of a US-China trade deal after Trump received a 'beautiful letter' from China's president
Mafoko believes that the rand and bonds may start to run even harder if the trade tensions are resolved.
“The real post-election relief rally may only be seen in the coming days or even months.”
The latest numbers from the JSE show that foreigners were the net sellers of South African shares to the tune of R3.2 billion in the three days before the elections. Amid the global market slump on Thursday, the selling continued the day after the election: foreigners were the net sellers of R324 million in local shares.
Emerging markets across the world slumped to two-month lows amid the trade war concerns. Naspers, which owns a large chunk of the Chinese digital behemoth Tencent and represents almost a fifth of the local market, fell 9% in the past week.
On Friday, the market recovered somewhat, with the all-share index up more than 1%. Nedbank, Absa and Standard Bank all jumped by more than 4%
Receive a single WhatsApp every morning with all our latest news: click here.
Also from Business Insider South Africa:
- MTN created a 1MB ‘bundle’ and opted in all its customers - because new rules don’t allow ruinous out-of-bundle data charges
- Vitality members can now save up to 50% off Uber Eats - but only on healthy meals
- An iconic beach in Thailand made famous by a Leonardo DiCaprio film will stay closed until 2021
- 9 'health' terms you hear all of the time and what they actually mean
- How to find the little-known 'kill switch' that lets you use Facebook with the maximum amount of privacy
- The US has a secret knife missile that kills terrorists without harming civilians