<strong>By:</strong> <b>Ian Scott, head of fixed income at Momentum Investments</b>

<h2>Expert shares insights on the foreign selling of SA bonds.</h2>

With ratings agency, Moody’s expected to review its assessment of South Africa in November, local markets are providing a good indication of how foreign investors expect the rating to go. According to JSE data, non-residents have sold a net R14.4 billion of South African bonds in August to date. While this sell-off is undoubtedly significant, it is important to note that it doesn’t represent a weighty share of South Africa’s bond issuance. To illustrate this, foreign ownership was at 43% in the first quarter of 2018, and the recent outflow has resulted in ownership reducing to 37%.

In fact, <strong>Ian Scott, head of fixed income at Momentum Investments</strong>, says that this reduction in foreign holdings may not necessarily be all bad for the market. “In the face of a possible ratings downgrade, you don’t want to have a massive foreign overhang that will hit your bond market when everyone wants to get out,” he explains.

Despite the alarm, Scott points out that South Africa isn’t the only country experiencing the foreign sell-off of its bonds. “South African bonds don’t live in isolation,” he points out. “Investors are reducing their exposure to emerging market assets in general as concerns have grown around the trade friction between the US and China, and global growth in general.”

Even with the foreign mass exodus, Scott believes it is not all doom and gloom, noting that local buyers have been stepping in. “The real yields on South African bonds are still attractive given the risks, particularly when compared to other asset classes. As such, more and more local investors have been prepared to get in.”