S&P Global Ratings was the first to downgrade the country on Monday, and Fitch followed suit on Friday. Both rating agencies changed South Africa’s foreign currency debt ratings from a BBB- to a BB+, or sub investment grade.
As expected by most fund managers and analysts over the last year, these ratings had a devastating effect on the rand exchange rate, banking shares and bonds last week.
The rand had on Friday lost about 12.2 percent against the dollar since President Zuma recalled Pravin Gordhan back from his investment roadshow on March 27. At the close of the JSE on Friday, the rand was trading at R13.80 to the dollar, much higher than the R13.28 level during the opening on March 27.
Given the strong possibility that the weaker rand, higher inflation and interest rate expectations would weaken the financial sector, banking shares were sold at a big scale during last week.
The banking index lost 13.6 percent since the opening of the JSE on March 27.
Bonds have also suffered. The R186 bond rate had increased from 8.37 percent to over 9.1 percent last week. This was an increase of 10 percent, meaning that the government now will have to pay 10 percent more to service its long term debt.
The weaker rand, however, benefited rand hedging and resources shares especially gold shares over the last two weeks.
The JSE all share index gained 2 percent, the resources 10 index jumped 12 percent, the gold index was up 21.8 percent and industrials advanced 2.4 percent since the close on March 24.
Property shares, just like bonds, also suffered and since March 24 the all listed property index is down 5.4 percent.
The weaker rand and higher international oil price, due to the US missile attack on Syria, caused fuel prices to become under recovered. From March 31 until last Thursday, the price for 95 Petrol was 22c a litre and that of diesel 4c a litre under recovered.
Given the current value of the rand and the Brent oil price back over the $55 (R758) a barrel level, a big increase in fuel prices at the beginning of next month can be expected.