For bond investors, Africa was a happy hunting ground last year. Its local-currency and dollar securities easily outperformed those of emerging markets overall as investors piled into a continent offering high yields and starting to recover from the commodity bust of three years ago.
African bonds returned more than the emerging-market average last year but risks abound, among them policy tightening in advanced economies, local and global politics, weakening currencies and another fall in oil prices. And then there is credit risk.
Mozambique and Republic of Congo missed Eurobond payments in 2017, while countries including Cameroon and Zambia agreed or began talks on bailouts with the International Monetary Fund. And since Namibia and South Africa were downgraded to junk, the continent has been left without any investment-grade foreign-currency issuers.
Christine Lagarde, for one, thinks Africa’s debt problems “could very well” worsen in 2018 as the dollar appreciates and the U.S. raises interest rates, according to an interview with Quartz magazine in December. The IMF’s managing director said yield-hungry bond investors “were so eager to lend that I don’t think they were very serious about assessing the risks.”
Africa’s debt is already less attractive on a relative basis. U.S. 10-year yields rose to their highest in nine months two weeks ago, which narrowed African dollar-spreads to 352 basis points, around the lowest in three years, according to Standard Bank Group Ltd.
Read the full article here: From Angola to Zimbabwe: Guide to Key Africa Markets in 2018