Anchor Capital sees a clear investment case for South African short-dated bonds, driven by expectations that the South African Reserve Bank (SARB) will cut interest rates as the tariff war started by Donald Trump suppresses local inflation.
In its latest strategy and asset allocation note for the second quarter, the asset management and brokerage firm argues that the “uncertainty and turbulence” caused by the US president’s policy swings will soften global growth, potentially tipping some economies into recession. A drop in prices for oil, of which South Africa is a major importer, could ease inflationary pressures provided the rand remains relatively stable.
Another factor is the rising expectation that the Federal Reserve (Fed) will act to prop up markets if needed – the so-called “Fed put” – as cracks begin to show in the US Treasury market. This also adds to the headroom that the SARB will have to ease rates.
“Against this backdrop, we have strategically shifted more of our domestic bond portfolios toward the part of the yield curve most responsive to monetary policy – the front end,” Anchor’s investment team, including CEO Peter Armitage and co-chief investment officer Nolan Wapenaar, write in the report. Short-term bonds typically mature in less than five years.
The market is now pricing in another two interest rate cuts of 25 basis points each that will see the SARB’s key repo rate “bottom” at 7%, rather than the 7.25% that traders and investors were anticipating a month ago. Inflation has consistently undershot expectations in recent months, with March coming in at 2.7% from 3.2% in February. That’s well below the SARB’s 3% to 6% target range.
Even so, SARB governor Lesetja Kganyago and other members of the monetary policy committee (MPC) acted with caution in March, keeping borrowing rates unchanged after three consecutive cuts, on concerns over the trade tensions. Wrangling over the budget and a proposal to hike VAT by one percentage point over two years (which has since been scrapped) also muddied the MPC’s outlook at the time.
South African government bonds are also attractive because they offer some of the highest yields among emerging markets, say Anchor’s investment team. While this is a reflection of growing concerns about the sustainability of the country’s finances, a “meaningful decline” remains unlikely. As a result, bonds could return 11% over the next 12 months, before accounting for inflation.
Economic fallout
Anchor has cut its 2025 growth forecast to just 1.3%, even before factoring in the rising political uncertainty within the government of national unity (GNU).
“Realistically, a sub-1% outcome is now firmly on the table, raising the likelihood of a renewed tax under-collection crisis by 2026,” the investment team write. “The indirect effects are equally significant. As China and Europe – South Africa’s largest trading partners outside the US – grapple with the global fallout of US tariffs, demand for South African exports could weaken further.”
At home, political risks are intensifying, as the GNU enters a fragile second phase, marked by ideological divisions and a lack of coherent policy direction. The risk of gridlock is high, with coalition members set to compete against each other in the 2026 municipal elections, further destabilising governance, they write.
Structural reform is progressing too slowly. And while Eskom and Transnet have shown marginal improvements over the past year, this hasn’t been enough to lift growth or restore investor confidence. Consumer optimism, buoyed briefly by hopes of greater political stability, is already fading – and looks “unlikely to return in 2025”.
Domestic stock picks
After a strong first quarter, the outlook for JSE-listed shares is “far less certain” than it was at the beginning of the year, “with the range of potential outcomes locally and abroad at levels we have not seen in many years”, Anchor writes, citing the global trade war and lower local growth expectations.
As a result, it has lowered its overweight call to neutral on South African equities, essentially meaning the analysts no longer see a compelling reason to favour local stocks over other asset classes.
Still, it says the recent pullback in the share prices of banks and retailers provides an “attractive entry point”, with banks trading at p:e multiples last seen during the height of load-shedding in 2023.
The firm also sees value in JSE heavyweights Naspers and Prosus, with the recent Just Eat Takeaway acquisition, which makes up only about 5% of market cap, materially widening the discounts at which the stocks trade, suggesting investors have written off the deal entirely.
However, underlying exposure to Chinese tech giant Tencent remains a key drawcard, with Anchor highlighting Beijing’s efforts to stimulate domestic consumption. Despite trade tensions with the US, Tencent’s earnings are expected to remain resilient, positioning it as a leading beneficiary of China’s internal growth agenda, they write.
Two other global industrial businesses Anchor has exposure to on the JSE are Bidcorp and AB InBev, and while neither will be immune to a global slowdown, they’re also not overly reliant on the US for growth, and have diverse portfolios.
Since January, the asset manager has shifted from a “more concentrated position” towards greater diversification, “placing additional emphasis on the quality of the underlying businesses we own”.
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