RICARDO SMITH: At the belly of the curve
Notwithstanding the risks, local fixed-income securities are an attractive investment
With election season upon us and heightened levels of policy uncertainty, including the National Health Insurance Act, a question is always posed around the investment case for SA. The single biggest asset class locally is government bonds, hence we find this as an appropriate benchmark to sense our attractiveness for portfolio managers internationally.
There has been some criticism on the risk/return behaviour of local fixed-income securities, with some investment professionals viewing them as quasi-equity. This is particularly as we have experienced multiple credit ratings downgrades into subinvestment grade by all three major global credit ratings agencies — S&P, Moody’s and Fitch — over the past five years. Furthermore, we remain greylisted by the Financial Action Task Force, which has added pressure to our relative attractiveness. Consequently, we have seen foreign investors reducing their holdings of local government bonds, from close to 40% to under 25% now...
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