South Africa's economy faces unabating structural challenges

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

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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.

"We view recent developments in the US trade policies as a material risk to the growth and inflation outlook," said Thierry Larose, portfolio manager at Vontobel Asset Management, which holds domestic government bonds.

"We see the weaker US dollar as the only meaningful tailwind for local assets." 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 258, the highest since October. 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.

Performance was more patchy. Domestic currency bonds though have underperformed, losing 0.38 since January versus a 2.98 gain in the JPMorgan GBI-EM benchmark.

Meanwhile, South Africa's hard-currency bonds have outperformed Sub-Saharan African peers this year, losing 1.58 compared to a 3.38 drop across the broader Africa index.

DOUBLE WHAMMY: It's been far from a smooth ride for investors.