South African pension funds have cut their holdings in local government bonds to the lowest level in nearly 4½ years, because of political turbulence in the country.

But yield-hungry foreign investors are proving less hesitant.

Domestic pension funds have historically been the largest investors in South African government bonds, but National Treasury numbers show that their share has fallen to 27.2percent as of end April - the lowest since December 2012.

Conversely, foreign investors have been buying, according to data from the Johannesburg Stock Exchange, and now hold 39.4percent of the bonds - their highest level on record.

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The rest of the bonds are held by banks and other financial institutions.

Local funds have steadily decreased their holdings in government debt since January 2016, after President Jacob Zuma changed finance ministers twice in one week at the end of 2015.

The moves led to a sharp sell-off in the rand currency and bonds.

But the political risks were heightened even more in March this year when Zuma dismissed respected finance minister Pravin Gordhan, leading to credit ratings downgrades to “junk” status by S&P's Global Ratings and Fitch.

Moody’s, whose Baa2 rating is two notches above “junk”, put South Africa on review for a downgrade.

“Locals are definitely more worried about the bonds and the rand because of the (latest) cabinet reshuffle.

"They’re more cautious about having big bond holdings,” Ashburton Investments portfolio manager Wayne McCurrie said.

Investors fear policy steps to spur on the economy and keep debt in check are taking a back seat to corruption scandals and the jostling for positions as the ruling ANC prepares to elect new leaders in December.

Indeed, leaked documents released by South African media yesterday alleging improper dealings in government contracts were seen heaping more pressure on Zuma.

“We are underweight nominal bonds and duration on South African bonds,” said Wikus Furstenburg, portfolio manager at Futuregrowth, which has about R170billion of assets under management and ranks as one of Africa’s largest money managers.