Just about everything is going wrong in South Africa and that’s why investors in its bonds are reaping a bonanza. It’s hard to find another country with minuscule growth, rising inflation, a quarter of its workforce unemployed and a currency that lost more than 25 percent of its value the past 13 months managing to finance its deficit with demand exceeding the supply for newly-issued debt.
Investors are able to benefit from South Africa’s misery because a portion of the nation’s borrowing is designed to appreciate as inflation accelerates and markets anticipate much worse to come. Since Jan. 1, the country’s inflation-linked bonds are outperforming all developed and developing countries with similar offerings, including Brazil, Germany and the U.S.
This does nothing to improve South Africa’s economic prospects. President Jacob Zuma recently acknowledged his country’s darkening outlook in an address to his fellow citizens, asserting, “We all have a lot to do to turn the economy around.”
Yet investors can’t get enough of South Africa’s 359 billion rand-denominated inflation-linked bonds, which comprise 22 percent of the nation’s total debt.
Read more: Bloomberg View
Matthew Winkler is the founding editor and editor-in-chief emeritus of Bloomberg News. He writes about markets. You can follow Winkler on Twitter at @Matthew_Winkler or find his past work in his archive.