Moody’s Investors Service is scheduled to publish its rating decision on South Africa’s debt on Friday (23 March), likely after the market closes.
The ratings firm currently has South Africa one notch above junk status, though the rating is on review for downgrade.
It is the only major ratings agency that still has the country’s debt as investment grade, while a downgrade by all three major firms would lead to expulsion from Citi’s influential World Government Bond Index, and could trigger up to R100 billion in selling by foreign investors.
Investec said in a note on Friday that expectations widely suggest that Moody’s will offer a reprieve to SA, “however, such a situation will only be temporary and a downgrade will still be on the cards in the near term”.
And despite being on a clear upwards trajectory in recent months, international perceptions of South Africa were once again dealt a blow recently with the announcement that it would be pursuing ‘land expropriation without compensation’.
If Moody’s does keep its foreign and domestic currency debt at investment grade, it will be seen by the investment community as a thumbs up for South African president Cyril Ramaphosa, said Tom Elliott, International Investment Strategist at the deVere Group.
“The rand and the stock market are likely to rally; it will be a positive message,” he said.
“But investors should appreciate it’s still early days in the post-Zuma era, and there will continue to be skepticism as to whether Ramaphosa can really deliver. Investors want to see not only economic growth, but evidence that the ANC can clean itself of corruption,” added Elliott.
“On president Ramaphosa’s to-do-soon list should be making labour laws more flexible, i.e. taking on the same unions who help finance the ANC. And also, sorting out the country’s power shortage. Last week’s delay in the signing of 27 IPPs was not a good development.”
A couple of high profile corruption convictions would send a positive message that the rule of law has returned, the analyst said.
“However, there will be plenty of senior ANC members who will put up a fight on this and try to de-stabilise president Ramaphosa. They may well find allies with the unions who object to a reform of labour laws,” Elliott said.
In morning trade, the rand firmed a fraction against the dollar.
- Dollar/Rand: R11.82 (-0.15%)
- Pound/Rand: R16.67 (+0.02%)
- Euro/Rand: R14.57 (+0.14%)