SA left out of Bonds Rush

Emerging markets have been attracting large amounts of foreign investment into local debt, with South Africa being a notable exception. While global asset managers have been taking a bullish stance on emerging markets, South Africa has seen a slow start to local debt sales with the January net inflows of $327 million marking the slowest start to a year since 2019.

The lack of interest in South Africa comes at a challenging time as the country is becoming increasingly dependent on foreign investment. The economy is also facing a power crisis that is hampering growth prospects and leading to a shift in the current account balance from surplus to deficit.

Despite inflation pressures easing and high yields, foreign investors are wary of investing in South Africa due to the ongoing power crisis and the persistent electricity blackouts. This has caused a slowdown in comparison to its emerging market peers, says Michelle Wohlberg, a fixed income analyst at Rand Merchant Bank.

The power crisis, caused by the state electricity company Eskom Holdings, has led to 97 consecutive days of power cuts since October 31, 2022. The government is currently investigating whether the energy crisis constitutes a declaration of a national state of disaster.

Wohlberg believes that once the Federal Reserve’s hiking cycle has peaked, there will be a greater allocation of funds into fixed income assets and South Africa will benefit from this. However, she also warns that South Africa will lag behind other emerging markets if the power crisis is not addressed urgently.