Why Coronation funds shed South African government bonds
Concern that prices of government assets do not reflect underlying risk and could undermine investments
Coronation has sold out of South African government bonds in three major funds, including its flagship Balanced Plus fund, because of concern that prices do not adequately reflect underlying risks. "South African government bonds look cheap on the surface, but there is an insufficient margin of safety to justify holding them," Nishan Maharaj, head of fixed interest at Coronation, said on Wednesday. At about 8.65%, the yield on the benchmark R186 10-year government bond was still considerably below the 9.5%-10% yield at which the bond was trading after the firing of Nhlanhla Nene as finance minister, he said. Coronation, which manages about R150bn in fixed-income assets, had reduced exposure to government bonds in funds where it could not drop its holding to zero. SA’s bond market has attracted net inflows of R35bn in 2017, as global investors have favoured higher-yielding emerging-market assets. Maharaj said foreign investors were mistakenly drawing parallels between SA and Brazil, ...
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