Investing in South Africa

Citigroup index boost for SA investment

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18 April 2012

South African government bonds could be included in Citigroup's benchmark World Government Bond Index from October. This would be a first for the country, drawing significant investment inflows and enabling state-owned companies to raise billions of rands in funding for SA's infrastructure programme.

Investment bank Citigroup announced on Tuesday that the South African Government Bond Index had become eligible for inclusion in its World Government Bond Index (WGBI), saying its April 2012 profile had satisfied all three WGBI requirements of size, credit, and lack of barriers to entry.

"If South Africa continues to meet all WGBI criteria with the May and June 2012 profiles, it will become the first African government bond market to be included in the WGBI, bringing the number of sovereign markets to 23, effective October 2012," Citigroup said in a statement.

Created in 1987, the WGBI currently comprises 22 countries including Australia, Canada, Germany and the United States. Many global bond funds are benchmarked against the WGBI.

Investor access to an 'exciting developing market'

South Africa's inclusion would be "a big milestone for the WGBI as we continue to diversify our coverage," said Ernest Battifarano, Citigroup's global head of index development and production. "Investors who have not previously considered South Africa may tap into this exciting and developing market."

South Africa's National Treasury welcomed Tuesday's announcement, saying South Africa had and continued to enjoy strong capital flows into its bond market.

"These inflows have been a direct benefit of prudent fiscal and macro-economic policies that have helped to cushion South Africa against the worst effects of the global financial crisis," the Treasury said in a statement.

Business Day said South Africa's inclusion in the WGBI would fuel demand for the country's bonds from investors who tracked the global index.

Compares well with other emerging markets

There are 11 South African government bonds in the April 2012 profile, with a market value of US$88.34-billion. If included in the WGBI, they would carry a projected market weight of 0.44% in the index.

According to Business Day, this weighting would compare well with other emerging markets on the WGBI, with Malaysia's standing at 0.37%, Finland's at 0.45%, Ireland's at 0.51%, Poland's at 0.55% and Mexico's at 0.64%.

The WGBI's entry requirements are: a minimum market capitalization of US$50-billion, a domestic long term credit rating of A-/A3 by either S&P; or Moody's, and no barriers to entry.

"South Africa has been running a very tight fiscal ship for many years, and the decision is wonderful for the country," Graham Smale, director of bonds and financial derivatives at the JSE, told Business Day.

SAinfo reporter