• 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.

South Africa 10-year government bond yield. Source: Tradingeconomics.com, National Treasury

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 dollar/rand exchange rate. Source: XE
The dollar/rand exchange rate. Source: XE

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.”

Foreign selling of SA shares

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%

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