South African government bonds debut on Citigroup’s World Government Bonds Index (WGBI) today, in a move it is hoped will attract investors to the economy recently shaken-up by mining-sector unrest.
South Africa’s inclusion on the banking group’s prestigious index marks the first ever entry of an African country on to the WGBI.
Twelve South African government bonds are now included on the index, at a total market value of $93.82 billion, accounting for 0.45 percent of the index’s value.
It is hoped that the inclusion will fuel a surge in investment inflows to the country which has over recent months been subjected to difficulties due to on-going and multiplying labour strikes across the mining sector. The country’s economy has seen a detriment of well over 3 billion rand ($361 million) as a result of the strikes, which continue to plague the sector.
Citigroup Global Head of Index Development and Production Ernest Battifarano praised the investment potential of the bonds’ inclusion, stating: “their appearance in the WGBI affords the opportunity to investors to gain exposure to this exciting market”, SAInfo reports.
In the run-up to the debt’s inclusion on the WGBI – an inclusion that was announced earlier this year in June – Citigroup estimates that over 58 billion rand ($7 billion) has been invested in the country’s bond market; which has seen over 71 billion rand ($9 billion) of inflows thus-far this year.
This inclusion comes just days after the mining unrest prompted Moody’s Investor Service to downgrade South African government debt by one-level from A3 to Baa1, citing the government’s “reduced capacity to handle the current political and economic situation” as one of the rationales behind the downgrading.
The downgrading by Moody’s also prompted a drop in the Rand last week. Following the announcement on Thursday, a weakening of up to 0.6 per cent was immediately visible as against the dollar.
However, given the country’s inclusion on the WGBI – which could only be undone by a mega-downgrading by Moody’s of the country’s debt to Baa3 -, it is expected that Thursday’s downgrading by the leading investor service will not have a lasting impact on trading of the South African currency. By Friday’s close of play, the Rand was trading at 8.315 rand ($1.000) against the dollar in New York, with the currency experiencing a 0.36 percent strengthening at opening today, trading at 8.2775 rand ($0.996).
