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Monday, 22 December 2014

Namibia’s Sovereign rating a boon to local markets

Foreign investors see Namibia’s strong ability and willingness to pay its creditors in a positive light, a local expert says.

Capricorn Asset Management Portfolio Manager Shaun Namaseb said that investors regarded the country as a jewel in Africa.

“As we are one of four African nations [besides South Africa, Botswana and Mauritius] to hold an investment grade rating from international ratings agencies, we have been the subject of attention from offshore investors.

“This year Capricorn Asset Management was able to host two offshore fact-finding visits from US and UK-based investment houses, facilitated by South African banks eager to invest in our domestic Namibia dollar denominated debt.

“Sadly, their participation is currently limited to the Namibian Euro bond and the Rand denominated JSE listed bond.

We, however, expect this to change as the local industry develops and we move away from a paper-based trading system towards the Central Securities Depository model,” Namaseb said.

Investors considered Namibia’s ability and willingness to pay its creditors as one of the key requirements before they entered a market, Namaseb explained.

“Our country produces strong GDP results, with the Fitch ratings agency estimating 5.2 percent growth for 2014. Similarly, the nation’s balance sheet remains healthy with a debt/GDP ratio of 25 percent whereas our peer nations run at a debt/GDP ratio of 40 percent.

“We are also often praised for our strong financial and banking system, which also bolsters the case for investment in Namibian Government Bonds,” he said.

However, analysts often classified the Namibian market as illiquid, or too small, to accommodate foreign investment portfolio flows, he said.

As a result offshore investors only made up a small segment of the domestic bond market and as such did not provide liquidity.

“The answer to increased liquidity does not solely lie with the Namibian Government increasing its debt outstanding, but rather with the asset managers and market participants, such as pension funds. “With a vast majority of pension assets managed from outside our borders and concentrated in a few players’ hands, the industry is unable to gain critical mass. We need more local managers with local decision making allocated pension assets, as it is the local manager who has a vested interest in developing the market,” he advised.

He noted that foreign buyers could repatriate 100 percent of the financial assets they purchased in the domestic market relatively quickly if things turned for the worse.

Regarding the performance of the asset class, Namaseb said that there was no data available for net foreign flows into the Namibian bond market.

“However, after a very difficult year in 2013 for the bond market brought on mainly by fears of rampant inflation domestically and speculation as to the timing of the end of US quantitative easing, 2014 had proved to be very bond friendly.“Whereas last year the BEASSA ALBI returned around 0.64 percent ended December 2013, bonds returned around 13 percent so far this year,” he said. BEASSA ALBI is the South African All Bond Index. This index comprises highly liquid South African Government and state-owned debt. It serves as a proxy for the bond market in South Africa.

Moves by central banks globally resulted in yields and interest rates across the world falling, a situation that forced offshore investors to make changes to their investment choices.

Offshore investors seeking returns were subsequently forced out of the comfort of high-grade sovereign debt, such as that of the US and selective European nations like Germany, into riskier debt that could provide lucrative returns.

“We find that investors who used to shun emerging market sovereign debt are now seasoned market participants in emerging market debt,” Namaseb said.

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