S.Africa’s bond market could see a slowdown in investment - CNBC Africa

S.Africa’s bond market could see a slowdown in investment

Southern Africa

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South Africa's bond market could see a slowdown in foreign investment. PHOTO: Getty Images

“From the American side, we have seen a weaker nonfarm payroll report for December but the market is likely to look through it. We do expect an improvement so the US economy could gather momentum as the year progresses and then, perhaps, the risk could be that the Fed may have to accelerate its reduction in bond purchases,” Investec Corporate and Institutional Banking economist, Tertia Jacobs, told CNBC Africa.

“Until there’s a clearer idea about how the economy and Fed policy will evolve, foreigners may remain on the side lines.”

According to the World Bank’s latest Global Economic Prospects report, it has forecast that sub-Saharan Africa, as a whole, could receive 4.1 billion US dollars in bond inflows in 2014.

The bank was also optimistic about growth prospects for South Africa, with a forecasted growth of 2.7 per cent this year, 3.4 per cent in 2015 and 3.5 per cent in 2016.

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Jacobs however, indicated that the weakness of the rand could hinder bond inflows and foreign investment into the country.

“One would think the weaker the rand, the better their entry level is because your entry level is then at 11 instead of 9 but at times, when the rand trades this weak, it’s normally a reflection of uncertainty. Foreigners tend to buy our local, financial assets into rand strength not into rand weakness,” she explained.

“When you look at why they’re selling our equities, in terms of anticipation, [it’s] what’s happening in America with regards to monetary policy and also the underlying weakness in the growth trajectory of emerging economies, where we’re in desperate need of reform. The cyclical dynamics have weakened so, from that perspective, buying equities is no longer that alluring.”

Jacobs added that when one looks back at net purchases of equities last year, foreign buying was flat.

“It shows you the big challenge for South Africa in terms of financing our current account deficit which is likely to be quite significant this year as well,” she said.

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