One notch or two? What analysts expect from the Moody’s SA rating review

·9 Jun 2017

A survey conducted by research analysts at Nomura paints a picture of what analysts, economists and academics expect from ratings firm Moody’s review of South Africa.

Moody’s is expected to make its call on South Africa’s credit rating “imminently”, with analyst anticipating an announcement after markets close on Friday (9 June).

A Nomura flash poll of South African market participants inside and outside South
Africa, with 128 responses, points to a muted cut in the country’s credit rating, with a more negative sentiment lingering among stakeholders.

Boiling the responses down to a percentage, Nomura found that the most likely outcome to the review was seen as a one-notch cut in the credit rating – to one level above junk status – with a negative outlook.

A one-notch cut with a neutral outlook was the next most likely, followed by a two-notch cut – to junk status – with a neutral outlook trailing some way behind.

According to Nomura, boiling probabilities down to a solid number is a tough task, as each individual respondent holds their own views of the levels of probability – but the findings carry the overall sentiment around the downgrades.

Nomura predicts that the outcome will be a one-notch cut with a neutral outlook, given Moody’s bull view of the South African economy, and the firm’s history of giving the country and its government the benefit of the doubt.

“We expect Moody’s to offer a pretty balanced statement still grasping on to some
potential positives and turnaround opportunities as well as overplaying the reform
agenda – reflecting its relatively more bullish stance than the other agencies,” Nomura said.

A one-notch rating cut would put Moody’s one level above junk status, where other ratings firms, Fitch and S&P global have South Africa currently.