Sub-Saharan Africa is weathering the global bond tempest better than most.
Seven of nine sub-Saharan African nations have outperformed the Bloomberg Emerging-Market Sovereign Bond Index since April 15, when a gauge tracking euro-area bonds reached a record high before the selloff wiped more than $400 billion off the value of global fixed-income markets. Dollar securities from the continent lost 1.9 percent in the period, compared with a 3.1 percent drop for emerging-market debt, 6 percent for euro-area bonds and 3 percent for U.S. Treasuries.
The slump started as investors balked at record-low yields from Asia to Europe amid speculation the Federal Reserve is preparing to raise interest rates. While African debt hasn’t entirely escaped the rout, yields are sufficiently alluring to entice investors tempted by the the continent’s growth prospects.
“It has enough good stories that would make it more resilient,” Kaan Nazli, who helps oversee $4.8 billion of emerging-market debt at Neuberger Berman Europe Ltd. in The Hague, said by phone on Wednesday. “The yields are still attractive. Those will help cushion during this period in which monetary conditions globally will be tightening.”
Gabon sold a $500 million Eurobond due in June 2024 on Tuesday that was about six times oversubscribed and bought by more than 200 investors. That “speaks about how investors look at Africa and suggests there’s relative immunity to the coming Fed cycle,” said Nazli.
Sub-Saharan Africa’s economy will grow 4.5 percent this year, faster than any other region aside from emerging Asia, which includes China and India, the International Monetary Fund said in April. The region’s ratio of external debt to gross domestic product will be 27 percent at the end of 2015, compared with 69 percent for developing Europe and 37 percent for Latin America and the Caribbean, according to the IMF.
“So far as growth is concerned, sub-Saharan Africa is still on a very firm footing and therefore provides relative value,” Nema Ramkhelawan-Bhana, an economist at Rand Merchant Bank, said by phone from Johannesburg on Wednesday. “There’s not much value in eastern Europe or even in the larger emerging markets.”
The selling of sub-Saharan Eurobonds that’s taken place in recent weeks offers investors an opportunity to add to their holdings, says Holger Siebrecht at Acadian Asset Management LLC. The Boston-based money manager owns dollar bonds of countries including Angola and Gabon and may buy Kenyan securities.
“We’re watching very carefully and we’re now looking to add names again,” Siebrecht, who helps oversee $350 million of emerging market debt, said by phone on Wednesday. “Kenya would be a good one. It’s a diversified economy with high growth rates.”
Yields on the East African nation’s $2 billion of securities due in June 2024 were little changed at 6.65 percent as of 3:38 p.m. in London on Friday.
Even oil producers such as Nigeria, Africa’s biggest economy and struggling amid Brent crude’s 38 percent slide in the last year, are faring better than countries outside the continent. Nigeria’s dollar bonds have lost 0.3 percent since April 15, versus 1.9 percent for Russia and 3.9 percent for Brazil.
Relative political stability in most Sub-Saharan Eurobond issuers adds to their appeal, according to Ray Zucaro, who helps manage about $380 million of assets for Los Angeles-based SW Asset Management.
“Just look at the political volatility we’re seeing in Argentina, Venezuela, Brazil, Ukraine and Russia,” Zucaro said by phone on Wednesday. “With a lot of the frontier names in Africa, you don’t have that.”