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Moody’s downgrade a mixed blessing for SA

Published Mar 31, 2020


Cape Town - An investment professional has compared rating agency Moody’s downgrade of the country's local and foreign currency debt to a football team’s relegation from the first division to the second division.

Anchor Capital fund manager Nolan Wapenaar said: “It’s not the end of the world, we’re still on the field and we can make it back to where we were, we’ll just have to overcome a lot more difficulties to do so.

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“The report was balanced and while shining a light on the negatives, also pointed out the positives that the country has working in its favour, such as a vibrant press, strong financial markets, strong independent institutions such as the SA Reserve Bank and an independent judiciary,” Wapenaar added.

But FNB senior economist Siphamandla Mkhwanazi said: “The downgrade did not come as a surprise but the negative outlook that came with it was largely unexpected.

“This suggests that the most likely next move is a further slip down the ratings.

“This could not have come at a worse time, when South Africa is quite stretched from a fiscal perspective.

“Nevertheless, this could be an opportunity for us to implement meaningful reforms that will help us recover post-Covid-19.

“The biggest risk, however, is that if we do not attend to our structural weaknesses, we could slip further into lower leagues, which makes us even less attractive as an investment destination and harder to regain our premiership status. Life in the lower leagues might be even worse than in the second division, which is where we are now,” said Mkhwanazi.

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Absa economist Peter Worthington said: “Moody’s statement acknowledges Covid-19 but makes only a slight reference to it as a likely negative impact on the economy and creditworthiness.

“We believe that more credit rating downgrades are likely this year, most imminently from Fitch and S&P, both of which have South Africa on negative outlook as of last year, with S&P due to opine on May 22 and Fitch around then as well.”

Global head, currency strategy and market research at ForexTime Jameel Ahmad said: “For the average day-to-day individual, the downgrade will have a limited impact those who work in larger financial sectors such as banks and institutions would perhaps see more of an impact.

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“Directly, this move doesn’t make goods and services more expensive but indirectly through weaker market valuations of currency and stock markets, there is more of an impact. As an example, the downgrade has encouraged the rand to weaken to record-low levels against the dollar above R18 and stock market has come under risk of further selling,” said Ahmad.


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