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Moody’s may spare SA as Zuma clings on

Lack of political upheaval is positive, Citadel’s Herman says.


South Africa could escape a further slide to junk status on Friday in the same way the nation’s leader, Jacob Zuma, defeated a parliamentary rebellion and clung onto power — comfortably but not without some sweating.

Moody’s Investors Service is scheduled to release a ratings review two months after it cut the local- and foreign-currency assessments to one level above junk, citing risks to growth and fiscal strength due to the political outlook. That was after it put South Africa on review for a downgrade following a cabinet reshuffle in which Zuma fired Pravin Gordhan as finance minister, prompting S&P Global Ratings and Fitch Ratings to cut the nation to sub-investment grade.

Policy uncertainty and political turmoil increased in the last two months as the nation’s anti-graft ombudsman instructed changes to the central bank’s mandate, the mines minister published new regulations and Zuma’s defeat of a no-confidence motion in parliament send the rand weaker. South Africa entered a recession in the first quarter.

“The fact that there is no political change or upheaval or unscheduled change of a president, all those are positive,” George Herman, the chief investment officer at Citadel Investment Services in Cape Town, said by phone. “I don’t think ratings agencies are in the business of taking a qualitative view on the standard of the president. The survival of the president from a ratings point of view is credit-positive.”

Against Zuma

All but one of 11 economists in a Bloomberg survey said Moody’s will keep the foreign-currency rating unchanged. Only two of the 11 predicted the local-currency assessment will be cut to junk.

While the no-confidence motion in Zuma was defeated by 198 voted to 177 on August 8, more than two dozen members of his ruling African National Congress opposed him. The ANC will elect new leaders in December when Zuma is due to step down. The party’s new head will probably succeed him as president of the country in 2019.

Moody’s is the only major credit-rating company to assess both South Africa’s foreign-currency and rand-denominated debt at investment grade. The bulk of investments in global index-tracking funds remains safe because about 90 percent of the country’s debt portfolio is rand-denominated. A downgrade of the local-currency rating could trigger a large outflow of funds as the debt will then be excluded from certain indexes.

Moody’s and S&P’s next reviews are scheduled for November 24.

The rand strengthened 0.1% against the dollar to 13.4570 by 7:47 am in Johannesburg, extending the gain for the year to 2.1%. It’s weakened 1.8% since Zuma defeated the no-confidence motion.

In November, Moody’s issued a research report instead of a ratings action on the scheduled date and the company could again offer no update on Friday, according to Peter  Attard Montalto, chief emerging-markets economist at Nomura International Plc. in London. The company may wait for more information from the mid-term budget in October and developments around state-owned companies, he said in written comments.

© 2017 Bloomberg L.P


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I can’t understand why we haven’t been downgraded to junk yet?
Maybe someone can help me out here.

When I imagine the various investment grades, I would think that there is a standardised and equal measure of deterioration (quantitatively or qualitatively) leading to a downgrade in along the investment grade spectrum.

I may be wrong, but seems to me that the lower the investment grade, the harder it is to be downgraded further. Almost like the agencies are rooting for you like a teacher quick to mark-down an A-student but exceedingly generous with a D-grade individual.

I say this all because my gut tells me that on any objective measure, our economic fundamentals/policy/political direction is all bad news. No green shoots. Given what we know about ANC, Zuptas and WMC rhetoric, why would anyone entrust SA Inc to return their capital in one piece. SA Government is a criminal organisation, this is objectively true.

Seems like the rating agencies apply a different and lower standard to developed countries – the bigotry of low expectations. While I understand the potential for abuse, a downgrade is exactly what we need to trigger the change we so desperately need.

I also may be wrong, but I think your teacher analogy may be close to the bulls eye and the psychology of some of these things. I also imagine that the D-grade student, not wanting to be marked down further is likely to try influence the teacher by any means possible, the teacher noticing the students desperation and pleas will either be sympathetic to the student and give additional time for improvement or open up to the students influences; either way there is no immediate mark down.

TheOwl…perhaps because the international markets just don’t care about RSA to pay that much attention.
After all events in the far-east are more impacting and entertaining than the Zupta goons.

No Citadel, public opinion and credit rating agencies are well aware that compliant opinions only exists where there are no ideas!

I think all the rating agencies gave these Zuptas enough time to ‘’step into line’’ and to come forward with a credible financial plan.
The combination of all the #Guptaleaks, State Capture reports and the latest failed ‘’no-confidence’’ vote, was the last straw and they will downgrade all our sovereign debt (foreign and local) down to junk.
The ANC led government I think perfected the ‘’radical financial transformation’ ’plan, to read – learn all the rules, every one of them, so that the Zuptas will know how to break and circumvent them, at will!
The rating agencies came under severe scrutiny and regulatory pressures during the last financial crisis and recession (2007 to 2009).
They were also accused that they provided ratings that were to positive. leading to severe investment risks worldwide. The EU passed new credit rating laws that now make the CRAs liable for improper or negligent ratings that causes damage to investors.

‘’Nothing is as good as it seems beforehand’’ George Elliot (1819-1880)

South Africa is at a crossroads, facing its biggest upheavals since independence in 1994. Globally, since the 2008 Great Recession there are growing explosive class and social conflicts due to the deepening crisis of capitalism.

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