Capital Market Bonanza for South Africa Capital Market …


The Christmas season brought a good mood to the capital market in South Africa, with giveaways of a weaker dollar galore and the performance of the country’s bonds in sterling.

According to Bloomberg’s ranking of 46 global bond markets, South Africa won the gold medal in 2021, outperforming any country with outstanding credit credentials.

Despite lingering fears about the US Federal Reserve’s response to higher inflation and an imminent full recovery of the world’s largest economy, several emerging markets have managed to deliver positive returns to bond investors in 2021, Africa South in the lead with a net return of almost 9%. Despite the declines in value, coupons for some of these bonds guaranteed solid positive returns.

Building on this achievement and another strong export performance, the rand responded positively by ending the year below the R16 level against the US dollar, gaining 1.3% in December and outperforming most of its peers in emerging markets.

In the first 11 months of 2021, exports amounted to more than 1.5 trillion rand, an increase of 33% over the 2020 figure. As a result, the cumulative trade surplus between January and November 2021 has more than doubled to reach a level of R316 billion.

Since early April 2020, when global foreclosure regulations were most severe, the rand has strengthened by more than 19% against the world’s dominant currency. The Australian dollar and the Mexican peso are the only two currencies to have managed to outperform the rand during this period.

Fitch upgrade

In other good news, Fitch Ratings overtook its competitors as it saw a marked improvement in a number of fundamental macroeconomic indicators in South Africa.

In a rare display of objectivity, Fitch changed the outlook for the country’s BB- rating from negative to stable. It remains a mystery, however, that the rating agency does not recognize the fact that South Africa’s public debt is predominantly denominated in rand. (Fitch’s rating applies to foreign and local currency debt).

The change in sentiment of one of the three major rating agencies comes a year earlier than expected by the National Treasury and will more than likely trigger similar reviews by the other two agencies, Moody’s Investors Service and S&P Global Ratings.

It is encouraging that Fitch has succeeded in recognizing the positive impact of a substantial reduction in the public debt-to-GDP ratio, from almost 90% to 78.1%, mainly due to a tax windfall of 130 billion dollars. rand over the past two budget cycles and the revision of the composition of GDP. The latter is standard worldwide practice and reflects an estimate of new areas of economic activity that emerge over time, particularly as a result of technological advances.

Travel bans lifted

The year also ended on a positive note for the hospitality industry, with US President Joe Biden lifting travel restrictions in South Africa and seven other southern African countries. Importantly, the relevant proclamation noted that clarity on the impact of the Omicron Covid-19 variant had rendered travel restrictions unnecessary.

Earlier in December, the UK also lifted its hastily imposed travel ban on 10 southern African countries, noting that the Omicron variant had been detected across the world and conceding that travel bans were not being used to nothing.

Hopefully, the general health effects of current and future Covid-19 variants will also turn out to be less severe than with previous ones, and the world may soon learn to live with the virus without severe barriers to activity. economic.

With South Africa’s national income growing at a steady pace and several indicators of business confidence in positive territory, the new year looks ripe for further growth and a consolidation of the economic recovery. DM / BM


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