By Johann M Cherian

Aug 28 (Reuters) - The discovery of increased reserves

of crude oil in Namibia has sparked interest in Namibian assets,

with an index fund tracking local government bonds poised for

its biggest annual jump on record.

The Exchange Traded Fund tracking local government bonds is

listed on the Namibian Stock Exchange and in South

Africa and has jumped over 20% in U.S. dollar terms

since Portugal-based Galp's discovery in April that

the Mopane field could hold at least 10 billion barrels of oil.

Since then there has been interest from at least 12 other

oil majors.

The fund is on track for its biggest annual gain - nearly

12% in U.S. dollar terms. Meanwhile, an ETF tracking the closely

watched JPMorgan emerging markets bonds index has gained

3.6% year-to-date.

Yields on local sovereign bonds have dropped further

following the discovery, with those on bonds maturing in 2037

declining around 150 bps since April, while those on

papers maturing in 2050 down around 200 bps.

"Most of the bonds issued are held by Namibian pension

funds, but we are seeing some foreign buying now. We have seen

massive yield compression ... since the oil discoveries were

first announced," said Rowland Brown, co-founder of Cirrus

Capital based in Windhoek.

Brown added that Namibian government bonds were still paper-

settled, leaving foreign investors looking to the ETF to

increase exposure to the resource-rich country.

The southwest African nation has garnered attention from

major international energy companies following several major

discoveries in recent years along its coast, although the

country has not yet produced any oil or gas.

TotalEnergies and Shell say they expect

production in 2029-2030.

PRESIDENTIAL ELECTION

The local equities index has gained over 19%

year-to-date in U.S. dollar terms, compared with a 7.5% gain in

MSCI's index tracking emerging markets equities.

On the currency front, the Namibian dollar has

strengthened 4.5% against the greenback this year, snapping a

four-year losing streak, with total central bank reserves

soaring nearly $1 billion since December 2019, as per LSEG data.

Against the backdrop of Namibia's economic potential

following its oil discoveries, attention will be on any changes

to the economic policy after a presidential election due at the

end of the year.

Graham Hopwood, executive director at Institute for Public

Policy Research in Windhoek, expects the ruling left-leaning

South West Africa People's Organisation candidate Netumbo

Nandi-Ndaitwah to win.

"One signal to watch is whether she keeps the level-headed

finance minister in his post. He is cautious and sees the

importance of reducing debt and avoiding outlandish promises to

the electorate," he said.

Namibian debt stands at over 60% of its gross domestic

product, but analysts say that the fact that a majority of the

bonds are issued domestically still remains a positive for the

country.

Earlier this year, ratings agency Fitch affirmed a "stable"

outlook for Namibia on expectations that the government debt to

GDP ratio will stabilise in the medium term, while Moody's

lifted the country's outlook to "positive" from "stable".

The Namibian economy is heavily dependent on mineral exports

including diamonds and rare earths. But following recent

discoveries, energy could eventually overtake mining in terms of

significance to the middle-income country's economy.

"Oil exports per capita out of Namibia will look like a Gulf

state in the 2040s, provided they are competitive globally ...

which should be a positive for debt to GDP ratios in the

country," said Charlie Robertson, head of macro strategy at FIM

Partners.

In South America, a similar oil boom in Guyana has been key

to its economic growth that is expected to increase by 34.3% in

2024, its fifth straight year of GDP growth above 20%.