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South Africa: Investors seek credit products

Lack of liquidity and diversification still restricts managers’ strategies.

Despite strong growth in the domestic corporate bond market, South Africa’s asset managers are still starved of opportunities to buy credit, and want new tools and mandates to change this situation.

That was the message from IMN’s third annual South African securitization and debt capital markets conference, held in Cape Town in November.

Excluding banks, corporates brought to market seven deals totalling R9.9 billion ($1.47 billion) in the first 10 months of 2005, compared with four deals worth R4.4 billion in 2004. But the market is still illiquid.

“There’s a buy-and-hold mentality because investors are short of credit,” Adré Smit, a portfolio manager at African Harvest Fund Managers, told the conference. The absence of a repo market in corporates and of a significant credit derivatives market needed to be addressed, he said.

Clients are still uneasy with credit and won’t let asset managers invest in sub-investment grade debt. “We have had a corporate bond fund for more than a year and not much money has flowed into it,” said Henk Viljoen, executive director, fixed income at Stanlib. “We need segregated mandates, and we need the pension funds to change their outlook.”

But a combination of global spread compression and a limited number of corporate names to choose from means that South African investors will not get rewarded if they take extra risk, warned Paul Crawford, fixed income portfolio manager at RMB Asset Management.

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