DOMESTIC FIXED INTEREST

POSITIONING AND INVESTMENT

OUTLOOK

Henk Viljoen

SA Key Stepping Stones

2

South Africa Real GDP Growth Year-on-Year

-3,0

-2,0

-1,0

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

8,0

05 06 07 08 09 10 11 12 13 14 15 16

%y/y

3

South Africa Corporate Deposits

250270290310330350370390410430450470490510530550570590610630650670690710730750770

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6R billion

4

5

Net Foreign Buying of Local Bond (ZAR bn)

-30

-20

-10

0

10

20

30

40

May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17

6

Foreign Flows Impact on CDS spread

180

190

200

210

220

230

240

250

(10 000)

-

10 000

20 000

30 000

40 000

50 000

Foreign Flows CDS Spread

7

Yield Curve – How far can it go?

8

Evolution of the yield curve

53

32

698

12

18

62

0

10

20

30

40

50

60

70

Bond 0 - 3 Years Bonds 3 - 7 Years Bonds 7 - 12 Years Bonds Over 12 Years

ALBI 2005 ALBI 2017

9

0%

20%

40%

60%

80%

100%

ALBI SA BondUniverse

Bond Fund

94%

65%55%

6%

13%

20%

0%

22% 25%

Government Parastatals Other Credit

bps

0

70

140

210

280

Jan-03 Nov-05 Sep-08 Aug-11 Jun-14 Apr-17

bps

AAA AA A

Portfolio Construction (An uneven universe)

Holdings of Local Bonds

10

9% 10% 13% 14%22%

29%36% 36% 36%

32% 36% 37%14%

16%18% 18%

18%

17%

17% 15% 15%18%

18% 17%

10%

13%14% 12%

14%12%

14%9% 9% 8%

7% 8%45%

46%44%

40%

36% 33%

25%

29% 29% 31% 28% 27%

23%14% 12%

16%10% 10% 8% 11% 11% 11% 11% 11%

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

% of total Foreign Banks Insurers Pension funds Other

Yield Decomposition – Fair Value Calculation (bps)

9.00%

223 199 186232 250

201 257 281 210250

381399

432425

400

0

100

200

300

400

500

600

700

800

900

1000

Average since 2011 Average since 2015 2016 average Latest Stanlib Forecast

Risk free rate Credit risk premium Implied inflation/currency risk premium

Source: Standard Bank, Stanlib, Bloomberg24

Income Fund Real Returns (Yearly)

12

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Income Fund Real Return (Yearly)

THANK YOU

14

-6 -14 -16

-24 -34

-45 -48 -45 -41

-100

-50

-

50

100

150

200

6,0

7,0

8,0

Jun '17 Jul '17 Aug '17 Sep '17 Nov '17 Feb '18 May '18 Aug '18 Nov '18

Market Change Market View STANLIB View

Rates Forecast

Troy Mazibuko

+27 11 448 5157

Troy.mazibuko@stanlib.com

WWW.STANLIB.COM

Collective Investment Schemes (CIS) in Securities are generally medium to long-term investments. An investment in the participations of

a collective investment scheme in securities is not the same as a deposit with a banking institution. The value of participatory interests

may go down as well as up and past performance is not necessarily a guide to the future. CIS are traded at ruling prices and can engage

in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from STANLIB

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Forward pricing is used. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go

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group of companies.

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suitability or potential value of any information contained herein. STANLIB Wealth Management Limited does not expressly or by

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Disclaimer

16