Why Downgrade Of The Economy Won’t Surprise Markets


Although a ratings downgrade of the economy is an almost certainty, the markets will not be surprised, a survey shows.

RMB Global Markets Research said on Friday that 84% of the respondents in their survey of professional investors in and outside South Africa expect the country to lose investment grade credit status in the next year.

The overwhelming majority of the respondents said although the timing of the downgrade is still uncertain, the markets have already priced in the move.

Ratings agency Standard & Poor’s (S&P), which rate South Africa at BBB-, one notch above sub-investment grade or “junk” status with a negative outlook, can however give its verdict on the state of the economy as early as June.

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S&P associate director Gardner Rusike said last week at an investor conference in Johannesburg that his agency was set to review and issue its latest report on South Africa in June.

Rusike cited political upheavals in South Africa as a real risk to the country’s sovereign credit rating.

“Recently we have seen focus shift to political issues in parliament and the Constitutional Court, and this could divert government’s attention from issues around policy implementation,” Rusike said.

Moody’s Investor Service, which currently rates South Africa two notches above sub-investment grade for foreign currency debt, is also expected to give its verdict on the SA economy in June.

In March, Moody’s placed the Baa2 bond and issuer ratings of the SA government on review for downgrade.

The agency typically concludes reviews within 90 days. This means that the agency could issue its review report by June 8 or earlier.

Along with S&P, Fitch also rates South Africa at BBB-.

More than 90% of RMB survey participants fear that a downgrade would have a negative impact on their businesses, with 47.2% stating this would happen through the negative impact on the economy.

The rest stated exchange rate weakness, higher interest and market volatility as real threats to their business should South Africa get downgraded.

source: Fin24

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