SocGen Expects a Mass Exodus Out of South African Bonds

“South African bonds face the risk of a sell-off by foreign investors as the rand’s plunge dims the allure of the nation’s debt, according to Societe Generale SA. (GLE)

The rand’s 8.2 percent fall against the dollar this year is the worst of 25 emerging marketsmonitored by Bloomberg. South African 10-year yields have climbed 12 basis points this month, compared with a 13 basis-point drop for similarly-rated Mexico.

Risks for foreign investors have increased as South Africa posted a current-account deficit close to a four-year high in the fourth quarter after mining strikes and slower growth in Europecut exports from Africa’s largest economy. A widening shortfall requires more foreign inflows to fund imports, a source of funds that has dwindled after record 2012 purchases.

“There is trouble brewing in South African markets,” Benoit Anne, the London-based head of emerging-markets strategy at SocGen, said in an e-mailed response to questions yesterday. “We may be getting closer to a real-money investor capitulation, the market equivalent of a volcano eruption.”

SocGen is underweight South African bonds in its Emerging- Market Optimal Local Bond Portfolio. The nation’s debt of all maturities longer than one year has lost 7.4 percent for dollar investors this year, the third-worst after Japan and the U.K. among 26 sovereign markets tracked by the European Federation of Financial Analysts Societies and Bloomberg….”

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