Africa’s sovereign bonds — all of them rated junk — have been among the biggest beneficiaries of the risk-on mood that’s sweeping global markets as economies reopen from coronavirus lockdowns.
Seven of the 12 top-performing emerging-markets this quarter are in Africa. Angola, which is in discussions to reorganize some of its loans, leads the pack with a return of 74%, compared with the 9.5% average for the 74-member Bloomberg Barclays Emerging Markets Sovereign Index. Zambia, which is restructuring its debt, isn’t far behind at 40%.
Investors, flush with cash and in need of yield following unprecedented policy easing by the world’s central banks, appear to be blind to the array of risks: the coronavirus pandemic that’s still spreading in most African countries, economies hard-hit by the disease and U.S.-China tensions that may revive the debilitating trade war.
“In line with the global risk-on mood, African hard-currency bonds alongside equities have been on a tear,” said Neville Mandimika and Daniel Kavishe, analysts at Rand Merchant Bank in a note to clients. “Markets have shrugged off these concerns.”
Gabon and Nigeria posted returns of more than 30% this quarter, while Ghana, South Africa and Egypt are deep into double digits.
Average yields on African sovereign dollar bonds declined 234 basis points since the beginning of May to 8.19%, according to the Standard Bank Africa Sovereign Yield Index. While momentum is carrying the rally at present, the pace of gains could slow in months ahead if the risks worsen, Mandimika and Kavishe said.