News24 Business | Top investor says risk premium on SA’s bonds is too high

(Natanael Ginting/Getty Images)

For more financial news, go to the News24 Business front page.The risk premium on South Africa’s bonds is too
high, a fund manager at Fidelity International Ltd. said, a day after President
Cyril Ramaphosa laid out a five-year plan to bolster economic growth.

“There is still too much risk premium embedded
in the valuations of local bonds, said Paul Greer, at Fidelity which has $13.7
trillion (about R249 trillion) under management, blaming doubts over government commitment to fiscal
prudence.

“We think there is still room for the local
SAGBs in particular to rally further from here. On the macro side we think
growth will rerate higher, fiscal metrics will improve and inflation will fall
further, he said.

Yields on benchmark South African government bonds
have already dropped by around 125 basis points since Ramaphosa’s African
National Congress lost its parliamentary majority in May 29 elections for the
first time in 30 years. That forced him to form a multi-party coalition which
includes the centrist Democratic Alliance and eight other parties.

The president in his first major policy speech
since the formation of the coalition delivered a business-friendly message on
Thursday, pledging fiscal discipline, less red tape and massive infrastructure
investment.

“The journey ahead will not be
straightforward, and we are very likely to see some bumps along the road ahead,
Greer said. “But we are optimistic on the direction of the country from
here. The extreme tail risks have been removed.

JPMorgan Chase & Co. separately recommended
buying the South African rand against a basket of the Colombian peso and the
Chilean peso.

Finance Minister Enoch Godongwana, speaking in a
separate interview, said the new government will now flesh out the details that
will “give effect to Ramaphosa’s five-year strategy.

The president also changed tact on controversial
policies that have been criticised by his alliance partners and the finance
minister as unaffordable, including converting a stipend introduced for the
unemployed during the pandemic into a basic income grant.

“The language of the president is careful,
Godongwana said. He will keep the stipend known “in its present form,
which is already on the fiscal framework, until we introduce other income
support measures, he said.