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South Africa's State Pension Fund Preparing for National Downgrade

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South Africa’s main government workers’ pension fund is seeking permission to invest more cash in international assets to protect against the impact of a possible downgrade of the country’s local-currency debt to junk status.

The Government Employees Pension Fund is in talks with Finance Minister Malusi Gigaba about easing its investment criteria to include more foreign bonds and equities, Abel Sithole, principal executive officer, told reporters in Johannesburg on Tuesday. The GEPF currently has 1% of its 1.7 trillion rand ($121 billion) in assets in foreign bonds and 5% in international equity.

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“There is a fear that we might be downgraded this year or next year,” Sithole said. “We need to increase our exposure offshore and we are seeking to do so.”

Investor concern that South Africa will lose investment-grade status on its local-currency ratings was heightened last week after Finance Minister Malusi Gigaba’s budget speech forecast rising debt and weaker economic growth. Bank of America Corp. estimates there may be $14 billion of outflows if rand debt is excluded from Citigroup Inc.’s World Government Bond Index, which requires non-junk ratings from Moody’s Investors Service and S&P Global Ratings.

South Africa’s foreign-currency debt status was downgraded to junk by S&P Global Ratings and Fitch Ratings Ltd. after former Finance Minister Pravin Gordhan was fired by President Jacob Zuma at the end of March.

Also on Tuesday, Johannesburg-based vehicle-to-logistics operator Imperial Holdings Ltd. said its full-year performance would be affected by the loss of South Africa’s investment rating.

The GEPF’s funds are managed by the Public Investment Corp., Africa’s biggest money manager.

–With assistance from Janice Kew.

—Read 5 Investment Tips for the Rest of 2017: Wells Fargo’s Midyear Outlook on ThinkAdvisor. 

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