Foreign investors return to South African bonds

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Foreign investors return to SA bonds

Key takeaways

- 139 billion rand ($7.9B) inflows into South African bonds in 18 months, surpassing prior four years.

- Bonds delivered 29% returns in dollar terms, second only to Argentina among emerging markets.

- Real yields among the highest in EM, supported by low inflation and a stable rand.

- Foreign ownership of debt has stabilized at 24.7%, reversing years of decline after index exclusion.

The surge reflects growing confidence in the coalition government formed after the 2024 elections, which has promised reforms aimed at stabilizing public finances and reviving growth.

Despite occasional volatility triggered by budget disputes in the first quarter and tariff threats from President Donald Trump, investor appetite has remained resilient. The increased demand helped South Africa’s local debt return 29 percent in dollar terms over the past year and a half, the second-highest among major emerging markets after Argentina. By comparison, developing-nation local debt averaged a 9.2 percent return, while emerging-market equities rose 14 percent.

Why investors are buying

Fund managers including Van Eck Associates and LGT Capital Partners argue South Africa’s appeal lies in a rare combination of high real yields, stable currency conditions, and anchored inflation. With consumer prices holding near the lower end of the South African Reserve Bank’s target range, the country’s bonds are delivering some of the highest inflation-adjusted returns across developing markets.

“The full potential of South Africa’s real yields has only begun to emerge,” said Martti Forsberg, portfolio manager at LGT Capital Partners.

Van Eck notes that the central bank’s plan to lower its inflation target could further enhance bond valuations in the months ahead.

Stabilizing market share

The strong performance comes despite South Africa’s 2020 removal from the FTSE World Government Bond Index following a downgrade to junk status. That event forced index-tracking funds to liquidate holdings, driving non-resident ownership down sharply from 44 percent in 2018 to 24.2 percent in late 2023. However, the latest Treasury data show a modest rebound to 24.7 percent at the end of July, suggesting stabilization in foreign participation.

Already in the second half of 2025, South African bonds have returned 4.4 percent for dollar investors, compared with a 0.2 percent average loss for peers, reinforcing their standing as one of the most attractive opportunities in emerging markets.

Outlook

As long as inflation remains low and fiscal reforms advance, South African bonds are likely to retain their edge over peers. But with global investors still sensitive to U.S. monetary policy and domestic budget negotiations, sustained inflows will depend on the government’s ability to maintain credibility and policy discipline.

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