As Nigeria and South Africa prepare to face each other in the African football semi-finals on Wednesday, there is no competition over who has already won in the bond market.
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(Bloomberg) — As Nigeria and South Africa prepare to face each other in the African soccer semifinals on Wednesday, there is no competition over who has already won in the bond market.
Nigeria’s dollar bonds have become one of the best performing in the world over the past year, returning 25%, as investors embrace major reforms in Africa’s largest economy. By contrast, bonds in South Africa – the second-largest economy – have returned just 4.4% and foreign investors’ holdings are at a record high amid the country’s political and budgetary challenges.
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The two nations, who will meet in the Africa Cup of Nations tournament for the first time in more than two decades to determine who reaches the final, face divergent fortunes. Nigeria’s Bola Tinubu has enacted a series of economic changes since winning presidential elections almost a year ago, while traditional power South Africa struggles with budget deficits and corruption scandals.
“The market is buying into the view that Nigeria has enough hard currency on its balance sheet,” said Gergely Urmossy, emerging markets strategist at Societe Generale SA in London. “Given the government’s reformist agenda, the fundamentals are more likely to improve than deteriorate. »
Nigeria’s bond yields put it in the global top 10, still behind Tunisia, Pakistan and Argentina, although the average performance of its emerging and frontier market peers is just 5.8%, according to one index Bloomberg. Tinubu, who won elections last February, plans to simplify the country’s tax laws and improve electricity supplies this year, following moves to end costly fuel subsidies and ease the foreign exchange regime complex of the country.
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The results of these reforms will likely take time, but with the change in communication from the Ministry of Finance and the country’s central bank, market participants say they can more accurately value Nigerian assets. The decline in the debt risk premium relative to South Africa’s shows that much of the potential is already accounted for, Urmossy said.
“The next step will be tracking and delivery,” he said. “Without results, the gap could widen again if fatigue grips the market while awaiting the results of the reform. »
On the other hand, in South Africa, investors are concerned about Finance Minister Enoch Godongwana’s budget scheduled for the end of February, given the government’s ever-increasing financing needs. The consolidated budget deficit is expected to widen to 4.8% of gross domestic product this year, which would represent a major exceedance of official estimates, Fitch Ratings predicts.
South African rand likely to suffer in February as budget looms
On top of that, the country will hold general elections this year, following a series of corruption cases and crises at state-owned energy company Eskom Holdings SOC Ltd. and the public rail and port operator Transnet SOC.
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On the football field, Nigeria is also in better shape. His team “Super Eagles” won the three previous African Cup of Nations matches against South Africa by an aggregate score of 8-1. And he has won the last four matches without conceding a single goal. Tournament hosts Ivory Coast will play the other semi-final against the Democratic Republic of Congo.
“I think being the underdog suits us, keeps us humble and puts all the pressure on Nigeria,” said Michael Treherne, a portfolio manager at Johannesburg-based Vestact, already wearing his gold and green “Bafana Bafana” shirt. to be ready for the match. evening game.
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