South Africa investors face global growth storm clouds

Investors have flocked to South Africa's domestic bond markets, betting the country can stay the course on reforms despite political fractures, but tariff threats and the prospect of a global growth slowdown are casting a long shadow.

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Africa's most industrialised nation depends on foreign investor support to manage its debt load and to keep borrowing costs in check as it faces persistent structural challenges, including unreliable electricity and governance issues that have weighed on its assets in the past.

Investor interest in domestic bonds has held up well so far. Treasury data shows non-resident holdings of local-currency bonds rose January through March to 25%, the highest since October, according to Reuters. Data from the Institute of International Finance shows the nation drew $2.8 billion in fixed income inflows between December and March compared to outflows in Asia and a more mixed picture in emerging Europe and Latin America. It's been far from a smooth ride for investors. Markets initially turned from gloom over political uncertainty to optimism after last May's election, which forced the African National Congress into coalition with rival parties widely seen as business-friendly.

But tensions within the alliance spilled into public view in February, as the ANC and the Democratic Alliance clashed over tax and foreign policy, fuelling doubts about the coalition's staying power.