Financial services group Old Mutual is reducing its exposure to government bonds in its Africa portfolio as many sovereigns on the continent come under mounting fiscal pressure.
The company, which operates in 12 countries on the continent including Zimbabwe, Kenya, Tanzania, Uganda and Ghana, said in its annual report it was taking a conservative approach to government bonds in its Africa portfolio.
It said it would responsibly and systematically reduce its exposure to government bonds in Old Mutual Africa Regions.
“Across the Old Mutual shareholder investments, the shareholder investment strategy adheres to the group’s low-risk investment strategy aimed at protecting shareholder value. The strategy targets capital and inflation protection, subject to market risk appetite limits,” the company told Business Day.
“Given broader fiscal risks and the global economic backdrop, a more appropriate strategic asset allocation may be implemented in certain countries where there are elevated inflationary sovereign default concerns to better preserve capital,” it said.
“As part of the ordinary course of investing we may rebalance our portfolio and/or in times where risks are heightened, employ certain tactical tilts to the portfolio. These tilts will cover all asset classes including bonds. Rebalances or tilts may change the make-up of asset portfolios, but not necessarily the quantum of the investments.”
Elevated sovereign debt levels continued to put pressure on certain African countries, driving devaluations, inflation and sovereign risk.
Ghana has found itself in severe financial difficulty, requiring a restructuring of its debt and going cap in hand to the IMF for assistance.
Zambia and Ghana have defaulted on their offshore debt.
The UK’s Guardian newspaper reported on Monday that diplomats from eight Southern and East African countries, including SA, Zambia and Mozambique, have called the UK government to support a private member’s bill that aims to speed up debt restructurings to deal with what they call an “unprecedented debt crisis among many African countries”.
SA, which holds the Group of 20 presidency this year, has put Africa’s debt crisis at the top of the agenda. An Africa Expert Panel, chaired by Old Mutual chair Trevor Manuel, has been established in an effort to raise initiatives to tackle the crisis.
The government says African countries will pay almost $89bn in external debt service alone this year, with 20 low-income countries at risk of debt distress.
Africa’s largest bank by assets, Standard Bank, has called out ratings agencies for overestimating Africa’s risk profile, which burdens the continent with high debt costs.
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