A current-account balance that\u2019s swinging into deficit is adding pressure on South Africa to stem a foreign-investor flight from the government bond market.<\/p>\n
While non-residents have offloaded government bonds worth R60.6 billion on a net basis over the past three years, current-account surpluses had tempered the need for portfolio inflows.<\/p>\n
That\u2019s changing now, and it may soon be necessary for the country to lure back foreign money. That means a weaker currency, rising bond yields, or both.<\/p>\n
\u201cThe country normally needs to attract sufficient capital inflows to maintain a balance of payments equilibrium,\u201d said Mike Keenan, a fixed-income strategist at Absa Group Ltd. in Johannesburg. \u201cNow that the current account is widely expected to move back into deficit territory South Africa may need to entice foreigners to return via a weaker rand and\/or higher bond yields.\u201d<\/p>\n
South Africa posted a current-account shortfall for a second straight quarter in the three months to September, suggesting the annual outcome may swing to a deficit after two years of positive balances.<\/p>\n
South Africa\u2019s Current-Account Gap Narrows More Than Expected<\/strong><\/p>\n Outflows from the local bond market gathered pace in 2020 after Moody\u2019s Investors Service followed S&P Global and Fitch Ratings in cutting South Africa\u2019s credit rating to junk, leading to the removal of the country\u2019s debt from global indexes tracking investment-level bonds.<\/p>\n Non-residents\u2019 share of government debt dropped last month to 26%, the lowest since May 2011, from a high of 43% in 2018.<\/p>\n The sell-off has driven yields higher, with the rate on 10-year rand bonds now almost 80 basis points above the five-year average and among the highest in emerging markets at 10.3%. That may already be an attractive level for some foreign investors as central banks around the globe moderate the pace of monetary tightening.<\/p>\n Unfavourable global conditions due partly to hawkish central banks amid the fight on inflation contributed to the selloff in South African bonds, said Michelle Wohlberg, a fixed-income analyst at Firstrand Bank Ltd.<\/p>\n \u201cNow that the narrative has turned somewhat dovish, we\u2019ve seen renewed interest for interest rate products from offshore investors,\u201d she said. \u201cBut there are still a lot of moving parts driving sentiment and investment decisions.\u201d<\/p>\n
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