Ratings review

Moody’s Investor Services and S&P Global set to release their latest ratings decision.

South Africa is yet again waiting for ratings agencies to determine their investment grade rating fate on the 24th of November 2017. Both Moody’s Investor Services and S&P Global will release their latest verdict after the Jse’s closing bell.

As it currently stands, South Africa has already seen its foreign currency credit ratings moved to sub-investment (junk) grade by the S&P and Fitch ratings agencies, while Moody’s has kept their foreign credit rating for South Africa one notch above “junk”. Around 10% of Treasury’s debt issuances are in foreign currency.

The real concern is around the country’s local currency credit rating as around 90% of the debt issuances by Treasury are in local currency. Fitch has already moved ahead of it’s ratings agency peers by having also downgraded South Africa’s local credit rating to junk earlier this year. S&P and Moody’s are poised delicately with a rating of one notch above junk.

Following the new finance minister, Malusi Gigaba’s Medium Term Budget Speech, Moody’s has expressed concern over the expenditure ceiling and lack of fiscal consolidation planned in the budget, hinting at downgrades to come. The ratings agency did however in an earlier note suggest it may wait for an outcome at the ANC electoral Conference before moving on SA credit ratings, giving hope of some short term breathing room for South Africa.

S&P Global, known to be the more aggressive of the two ratings agencies scheduled to review SA credit on Friday, has echoed similar sentiment around the budget speech and looking towards the political landscape in December before making significant changes to South Africa’ s investment grade future.

Should either the S&P or Moody’s move the country’s local debt to sub investment grade, we are likely to see an initial weakening of the rand and capital outflows from our bond market. However, inversely the market might find relief if the downgrade decisions are shifted to after Decembers ANC Conference. Either way, it does however appear that a downgrade whether now or later is inevitable and been partly priced into bond and largely priced into Credit Default Swap (CDS) markets.  

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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