By Xola Potelwa
JOHANNESBURG, April 17 The prospect of billions
of dollars in new investment money pouring into South Africa
sent the country's bonds sharply higher on Tuesday after
investment bank Citi said they were on track to be included in
its main global bond index.
Such a move would broaden South Africa's international
investor base and trigger huge amounts of purchases - as much as
$9 billion by one estimate - from overseas pension funds and
others that track bond indexes.
Yields on the benchmark 2026 issue fell sharply as
investors bought the bond and the rand currency erased
losses to trade up 1.5 percent against the dollar.
"Around $1.5 to $2 trillion is believed to track the index,"
said Peter Attard Montalto, an emerging markets economist at
Nomura International in London.
"South Africa would have a weight of around 0.43 percent and
that would mean there would need to be around $9 billion of
South African government bond-buying by index trackers. That
equates to 8.9 percent of the total outstanding - huge."
Citi said South Africa was currently in a three-month
"monitoring period" to make sure it continued to meet index
entry requirements to its World Government Bond Index (WGBI).
These are based on issue size, ease of entry and credit rating,
all of which were passed in April.
"If South Africa continues to meet all WGBI criteria with
the May and June 2012 profiles, it will become the first African
government bond market to be included," it said in a statement.
Inclusion in the index would be a huge boost for the
government after all three major ratings agencies cut the
outlook on their credit ratings over the past six months.
The WGBI currently has 22 countries, with Malaysia, Poland
and Mexico the only emerging markets included.
Pretoria applauded Citi's announcement as an endorsement of
its long-term spending plans in the face of rating agency
concerns, and said the extra cash pulled into the economy could
ultimately filter through into the stock market.
"It is positive for our own borrowing costs and could mean
in the medium-to-long term we could see further foreign capital
inflows and to a degree it could have a positive spin-off into
equity markets," said Monale Ratsoma, head of liability
management at the Treasury.
Citi sub-Sahara strategist Leon Myburgh said he expected
inflows of $5-$7.5 billion, compared with a total market size of
"The big thing about it is it will add a new investor base
into South Africa," he said.
A final announcement is expected at the end of June, and
South Africa's formal inclusion would then commence in October,
The yield on South Africa's 2016 bond fell 28 basis points -
its biggest daily fall since October 2009 - to 8.13 percent, the
lowest in more than two months.
The rand was trading at a 10-day high of 7.8265 against the