FTSE Russell and the Johannesburg Stock Exchange (JSE) have partnered on a series of co-branded fixed income indices measuring the performance of domestic bonds issued in South Africa.
The indices provide comprehensive coverage of fixed income markets in South Africa.
The launch extends the existing FTSE/JSE Africa series which covers a wide range of SA-listed equity exposures including broad market, sector, and factor-based indices.
The new fixed income offering initially consists of two indices.
The FTSE/JSE All Bond Index comprises 20 conventional listed vanilla bonds with fixed, semi-annual coupons, while the FTSE/JSE Inflation-Linked Index consists of 15 bonds with returns linked to the Consumer Price Index.
Sovereign, state-owned, and corporate bonds are eligible for inclusion, providing investors with comprehensive market coverage. Issues must have at least R100 million outstanding and more than one year remaining until final maturity.
Bonds are selected based on an analysis of market capitalization and daily liquidity. Each index is weighted by market capitalization and rebalanced on a quarterly basis.
A range of sector and maturity sub-indices are available for both index categories.
Waqas Samad, Group Director, Information Services, London Stock Exchange Group and CEO of FTSE Russell, commented, “We are delighted to expand our important and long-standing partnership with JSE in South Africa to include fixed income indices. FTSE Russell aims to be the world leader in multi-asset indexing and now, domestic and overseas investors in local South African debt are able to benefit from FTSE Russell’s robust, transparent and objective approach to managing fixed income benchmarks.”
Dr Leila Fourie, CEO of Johannesburg Stock Exchange, added, “Our partnership with FTSE Russell has seen local and foreign investors in stocks listed on our markets benefit from the expertise of an independent global index provider for almost twenty years. Today’s launch extends these benefits to corporate and government bond investors and will improve international access to our debt markets.”
Credit rating downgrade
The new fixed income indices come at a troubling time for South Africa’s bond markets.
Just last week, Moody’s cemented South Africa’s junk bond status by becoming the last of the three major ratings agencies to downgrade the country’s foreign currency debt from investment-grade. Moody’s cited ballooning government debt, excessive spending on civil servant wages, and the likelihood of recession and reduced tax income resulting from the coronavirus pandemic as key factors in its decision.
S&P Global and Fitch had previously labelled South Africa’s debt as junk in April 2017 when former President Jacob Zuma reshuffled his Cabinet and removed Finance Minister Pravin Gordhan.
Both S&P Global and Fitch have since further downgraded South Africa, while all three agencies currently have a negative outlook for the country.
The downgrade also means that South Africa will be removed from key investment-grade global government indices such as the FTSE World Government Bond Index (WGBI). Analysts estimate up to R200 billion worth of SA government bonds may be sold as ETFs and mutual funds linked to these indices complete their next rebalance.
The downgrade also spells bad news for some corporate entities in South Africa such as the country’s banks which have also been downgraded from investment grade as their credit ratings are capped at the same level as the government.