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JPMorgan Believe 5y-10y Part of SAGB Curve Can Attract Inflows

SOUTH AFRICA
  • JPMorgan’s assessment of the latest flows and positioning indicators for South Africa local markets suggests positioning is not stretched, with most scope for EM-dedicated investors to increase their bond longs.
  • Official data shows the largest foreign SAGB positions in the R186 and R2035 bonds, but JPM think the 5y-10y part of the curve can still attract inflows given cheap valuations.
  • For ZAR FX, IMM data points to large two-way positions but flat net exposure, which suggests symmetric risks for ZAR around the election.
  • Unlike for SAGBs, JPM see no obvious valuation gap in USDZAR, with the recent rand gains well explained by the rise in SA’s commodity terms of trade.
  • Therefore, JPM continue to prefer bonds over FX and maintain 05-Jun-24 USD/ZAR calls (19.70) as a hedge (entry: 1.20%, current: 0.04%, total return: -1.16%), but passing of the election risk may allow them to return to medium-term bullish views on ZAR.
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