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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