EMERGING MARKETS-S.Africa lifted by inflation data, finance minister's comments

Thu Apr 20, 2017 9:08am GMT

By Claire Milhench

LONDON, April 20 (Reuters) - The South African rand rose on Thursday and local bond yields fell to three-week lows, helped by slowing inflation, the government's rejection of nationalisation and the tailwind of a weaker dollar.

The rand firmed 0.7 percent against the dollar to a three-week high and the 2026 benchmark government bond yield fell after consumer inflation eased in March and Finance Minster Malusi Gigaba dismissed calls from one of his own advisers for the nationalisation of banks and mines.

The average yield spread paid by South African sovereign bonds over U.S. Treasuries on the JP Morgan EMBI Global Diversified also narrowed 6 basis points (bps) to 278 bps, a two-week low, outperforming the broader index.

South African assets have weathered a turbulent period, hit by two credit ratings downgrades to junk following the sacking of business-friendly finance minister Pravin Gordhan. Gigaba's comments show an attempt to calm investors.

But S&P Global Ratings warned on Wednesday that South Africa's credit rating could get downgraded deeper into junk territory if ongoing political uncertainty stalls the reforms needed to grow the economy.

"Of the big countries, that's the one that has more risk attached to it politically, even more so than Turkey," said Daniel Moreno, an emerging markets debt fund manager at Rubrics Asset Management.

"In Turkey there is certainty, in South Africa there isn't. They need a very stable government with a very clear policy and they don't have that. As long as we have a country that is driven by internal politics at the ANC, I don't see how it can get any better."

With the dollar slipping 0.3 percent against a basket of currencies, most other emerging currencies also made gains.   Continued...

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