The new data sheds new light on foreign flows in the South African bond market, and the outlook is more optimistic than previously thought.
The JSE recently began publishing data on foreign-settled transactions, showing that money has been flowing into the bond market. Non-residents have added a net of R21.9 billion in the year up to October 8.
That’s significant because analysts have long relied on a different metric as a way to estimate foreign cash flows, which showed investors pulled a record R99 billion out of the bond market this year. Exchange officials say the new data on liquidated trades is a better way to capture real flows and long-term trends.
“The markets have always been obsessed with daily data on the flow of foreign bonds even though it can be quite misleading,” said Peter Attard Montalto, head of capital markets research at London-based Intellidex UK Ltd.. very welcome to get a better view of what the flows are actually doing. ”
Government bonds rose Tuesday, with the 10-year benchmark yield falling eight basis points to 9.74% as of 4:09 pm in Johannesburg. The rand strengthened 0.9% to R14.55 per dollar, on track to achieve the strongest close in more than a month.
The new data supports trends seen in similar numbers from the Reserve Bank of South Africa and the National Treasury. Everything points to investor confidence in government fiscal policies and an appetite for yields that are among the highest in emerging markets, according to Mark Randall, director of information services at the JSE.
It also helps explain why the rand has held firm against the dollar this year, even as investors were concerned about the trajectories of inflation and the Fed’s shrinking, according to Henrik Gullberg, a macro strategist at Coex Partners. Other factors supporting the currency included improving the terms of trade in Africa’s most industrialized economy.
The South African currency is one of only four in emerging markets that has not weakened against the dollar this year. That’s despite the prospect of capital flight when the Fed begins to reduce stimulus. Foreign investors own about 30% of South African government debt, making the country particularly vulnerable to a liquidation.
“The perception of South Africa has improved in recent months in relative terms,” said Guillaume Tresca, strategist at Generali Insurance. “In the high-yield space, South Africa has performed relatively well, benefiting from better terms of trade, higher commodity prices and a lack of political noise.”
The data anomaly arises because of the way bond transactions are reported and settled, according to Randall. While the daily bond trading data is an accurate reflection of the transactions reported to the exchange, some of those transactions do not settle within the required three days and carry over to a different settlement date. Some trades are not settled at all. In those cases, a cancellation operation is not reserved.
The settled transaction data provides a longer-term view on investor positioning, while the data on daily transactions provides a picture of market liquidity rather than capital flows, Randall said in an emailed response. email to questions from Bloomberg. “This is good news for the history of South Africa Inc., as the settlement data represents net entry of foreigners into the market.”
© 2021 Bloomberg