By Ben Edwards
African government bonds, much sought-after by yield-hunting
investors this year, took a heavy knock Wednesday amid concerns
about the Ebola outbreak and a slide in global oil prices.
West Africa is leading the declines. Nigeria--the continent's
largest oil producer--saw prices on its bonds drop by almost three
cents on the dollar Wednesday, mirroring similar falls across the
region. Global oil prices fell sharply Tuesday as output remains
high despite waning global demand. Brent crude fell 1.5% to $83.78
a barrel on Wednesday, its lowest finish since Nov. 23, 2010.
A weaker global growth outlook has also prompted investors to
pull back from riskier assets, meaning even African borrowers that
aren't reliant on oil revenues are getting bruised. Kenya's 10-year
bonds issued earlier this year, for example, slumped 2.7 cents to
trade at around 102.5 cents on the dollar, Tradeweb data show.
"Africa has outperformed this year, so in a period where
investors are starting to pull back, that's an obvious area to
start trimming back on, " said Kevin Daly, a fund manager at
Aberdeen Asset Management.
African bonds have returned 10.4% this year, according to a J.P.
Morgan index. By contrast, emerging-market bonds have returned
8.65% globally, J.P. Morgan index data show.
African countries have issued almost $9 billion of dollar bonds
this year, roughly in line with last year's record pace, according
to Dealogic. Demand has been strong too. Kenya, for instance,
attracted $8 billion of orders for its debut $2 billion deal in
June.
The indiscriminate nature of Wednesday's price falls means some
specialist investors might see the selloff as a buying
opportunity.
"For borrowers that carry lower risks around Ebola and that may
actually benefit from lower oil prices, we think we'll start to see
some bottom fishing at these levels," said Mark Baker, an
emerging-market fund manager at Standard Life Investments.
Mr. Baker says he has taken advantage of falling prices to buy
Kenyan bonds Wednesday.
Lower oil prices may even benefit some oil producing nations
such as Nigeria by helping reduce inflation, which could encourage
the central bank to cut interest rates.
"If inflation comes down in Nigeria, that will be very
interesting for investors," said Bryan Carter, a fund manager at
Acadian Asset Management in Boston.
Other African borrowers remain in the spotlight for different
reasons. Ghana, which issued $1 billion of bonds last month while
at the same time seeking financial aid from the International
Monetary Fund, has seen its bond prices drop sharply amid mounting
concerns about the country's debt levels.
The bonds, which are due January 2026, are quoted at a cash
price of about 96.5 cents on the dollar, almost four cents lower
than Tuesday's close, Tradeweb data show.
Write to Ben Edwards at ben.edwards@wsj.com