SA is in a position to lure investors to high-yielding bonds
Foreigners have not participated actively in our auctions for almost two years but there are reasons why that could change
It is tempting to see only the negatives regarding SA (and other emerging markets), but when it comes to local sovereign bonds we believe several positive developments are being overlooked in this time of fear. The SA Reserve Bank has cut the repo rate by 200 basis points, which is expected to deliver R80bn in stimulus to the real economy. The Bank further reduced the capital and liquidity regulatory requirements of banks, enabling them to extend credit to business and individuals requiring support during this period.
Because SA did not experience cyclical credit extension, our banks entered this period relatively well capitalised on a global scale. Monetary policy appears to have been effective to date in easing liquidity concerns in the market, reducing the risk of another liquidity-induced sell-off. Importantly, both the Reserve Bank and the banks are now fully able to act counter-cyclically due to years of prudent policy action and balance sheet management...
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