SA dollar bonds among EM worst performers amid election jitters
TLDR
- South Africa's dollar bonds experience significant decline, down by 4.4% in 2024 among emerging markets due to election concerns.
- The ruling African National Congress (ANC) faces voter discontent over power blackouts and corruption failures ahead of critical elections on May 29.
- Nation's credit default swap (CDS) spread widens by 53 basis points, indicating rising uncertainty in South Africa's market.
South Africa's dollar bonds have experienced a significant decline, dropping by 4.4% since the beginning of the year, making them some of the worst performers among emerging markets. This downturn coincides with looming elections scheduled for May 29, sparking investor concerns about the potential formation of a market-unfriendly coalition government.
Bloomberg highlights that these elections represent a critical test for the ruling African National Congress (ANC), facing discontent among voters due to recurrent power blackouts and perceived failures in addressing corruption.
The nation's credit default swap (CDS) spread has widened by 53 basis points in 2024, reflecting increased uncertainty. South Africa's 4.3% 2028 bonds have declined from 93.6 to 90.6 cents on the dollar since the year's commencement, currently yielding 6.76%.
Key Takeaways
South Africa faces its sternest electoral challenge since the advent of democracy in 1994 as voters prepare for May polls. Dissatisfaction stemming from persistent power outages and perceived government failures in tackling corruption may diminish the ANC's electoral dominance, potentially resulting in a share of the vote below 50%. This scenario could compel the ANC to forge alliances with other parties to maintain governance. Thalia Petousis, a portfolio manager at Allan Gray, attributes South Africa's recent economic struggles partly to apprehension among foreign investors regarding the upcoming elections and the potential for an unfavorable coalition outcome. Investors express particular concern over costly and populist proposals such as the National Health Insurance system and land expropriation without compensation, advocated by the third-largest parliamentary party, the Economic Freedom Fighters.
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