Demand for South African local-currency bonds is surging, driven by optimism around the country’s new broad coalition government and prospects for interest-rate cuts as inflation moderates.
The bonds have returned 8.5% in dollar terms since the vote, by far the best performance in a Bloomberg index of emerging-market local-government debt. Turkey has fared next-best with a return of 3.9%, while the average is 0.5%.
"South African government bonds have experienced a remarkable rally on the back of the election, outperforming all other EM local markets," said Christian Wietoska, a strategist at Deutsche Bank AG.
Investors are wagering that the presence of opposition parties may help the new administration tackle state ineptitude, power shortages and logistics snarl-ups that have hobbled economic growth. The rand is the best-performing developing currency since the election, while South African stocks have hit record highs.
Non-residents have purchased R12.2 billion of South African bonds since 29 May, based on settled trades data from exchange operator JSE. That’s brought year-to-date inflows to R22.2 billion, exceeding the R16.5 billion registered last year.
