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The market has already downgraded South Africa to junk

Investors are positioning themselves for fiscal deterioration and a credit downgrade.

Moody’s Investors Service hasn’t said it, but investors already think it: South Africa’s credit is junk.

The company, which rates South Africa’s debt Baa3, the lowest investment level, is due to review its assessment in November. Given Eskom’s financial woes and its implications for government debt, the market is pricing in a downgrade.

These three charts show how traders view the country’s fiscal outlook:

The premium investors demand to hold South Africa’s dollar bonds rather than US Treasuries is almost twice as much as the average for investment-rated emerging markets. It’s also wider than the spread for Brazil, which has a non-investment grade rating from Moody’s, S&P Global Ratings and Fitch Ratings. The risk premium has climbed since mid-July, when the government announced it would increase borrowing to support Eskom.

South Africa isn’t benefiting from the global hunt for yield. While average local-currency yields for emerging markets have been falling, South Africa’s have been rising. The premium of South African yields over developing-nation peers is now at the highest since February. That suggests investors are positioning for fiscal deterioration, and a credit downgrade.

The cost of insuring South Africa’s debt against default is much higher than that of Russia, which has a similar Baa3 rating with Moody’s. It’s also higher than Brazil, rated two levels lower.

Moody’s has been “too kind,” said Win Thin, head of currency strategy at Brown Brothers Harriman & Co., who predicts South Africa’s credit rating may fall three levels into junk.

© 2019 Bloomberg L.P.

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Yes. It’s great. It also affects the Rand.

All my locally held foreign ETF’s are up well over 1.5% for the day.

In addition it also helps to have a President that is now regarded as not trustworthy.

I share you sentiment. Same here re rand-denominated ETF’s 🙂

Some years ago there was a regular MW-commentator with the username “RobertInSydney” (ex-Saffa) which repeatedly said “get your money directly offshore, in a bank account or investment held in your own name”. This message spooks with me.

That would be the logical next step to take after taking some profit on local rand-hedges.

Let’s not mention ol’ Robert in case he returns from the dead.

Investors have downgraded the ANC to junk. They always were junk. Mandela was the temporary lipstick on a pig. The ANC under Ramaphosa is a pig without any lipstick.

This article is too long in what it’s trying to say. It’s easier just a write “SA is in longterm structural decline, post colonialism, adjusting to the mean-average with African values”.

Regarding junk status: this also means our esteemed local commercial banks, are also “junk” status, as their ratings cannot exceed that of the country’s sovereign rating.

Still feel comfortable with superior returns from local (equity-beating) money market/call/fixed deposit accounts? Yes, let’s not hope the day will come that you will only be able to draw a small daily amount, despite what capital balance is reflected on your statement.

Although the “market” might have downgraded SA already I am prepared to bet that the full effect of a downgrade has not been realized just yet.

There will be the proverbial snotklap at some stage.

Be fearful when they are greedy and greedy when they are fearful…. dont forget these words of wisdom….

Absolutely!

SA the old powerhouse of Africa is in pause mode. Just letting the rest of Africa, broken and bankrupt catch up with it.

SA was known (mostly in the media) as “Africa’s largest economy” for some decades (or century).

The past few years (thanks to Zupta et al) SA became lovingly known as the continent’s “most industrialised” country 😉 since Nigeria claims the largest economy title.

The media better start thinking of new words soon! Perhaps the “leader among SADC countries”? Egypt en Ethiopia (that was often mocked in the past) is breathing down this ANC-Kingdom’s neck.

Wait…there we have it: “Africa’s leading Kingdom south of Zambia”(?)

..or “Mozambique’s drier cousin”(?)

..or “Africa’s most successful welfare state”(?)

I beg to differ, at about R20+ to the Dollar, that’s what awaits us and only then will the downgrade be priced in.

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