By Mpho Hlakudi.
Prescient Investment Management is doubling down on short-duration South African government bonds, highlighting their attractiveness for emerging market investors amid the current global headwinds.
High real yields and interest rates, the central bank’s credibility and the progress made toward lowering inflation are all pointing to potential gains for the bonds going forward, Bastian Teichgreeber, chief investment officer at Prescient, said in an interview.
The Cape Town-based firm, with more than R145 billion ($8.15 billion) under management, sees strong upside in the bonds, which are heavily undervalued, Teichgreeber said. “The case for South African government bonds, I think it’s quite strong,” he said.
The yield on South African bond due in 2030 rose 3 basis points to 8.18% on Monday, after dropping to its lowest level since 2015 on Friday.
“The front end of the yield curve looks very, very safe. Those are the core areas where we like to position ourselves,” Teichgreeber said. So far, the nation’s local-currency bonds have returned 1.98% in dollar terms in August, compared with a 0.9% return for emerging-market peers during the same period.
“We assess more compression to come as yield curve components related to inflation and its priced expectation continues to moderate toward 3%,” he said.
Still, the country needs to attract more foreign money, as local investors already have elevated holdings, Teichgreeber said. South Africa’s government needs to create political certainty, end power cuts, drive structural reforms including at beleaguered state-owned rail and port operator Transnet, he said.