There is very little good news attached to South Africa becoming a junk economy – but the potential downgrade will present some opportunities for investors as well.<\/p>\n
According to a report by Reuters<\/a>, speculative fund managers – those who are not tied down by policies prohibiting investment in junk economies – would likely see South Africa as a big “buy” country, should it suffer a cut in June.<\/p>\n A cut to junk status would force the country’s borrowing costs upwards, and many expect an mass exodus of investment capital from the country as investors flee the market.<\/p>\n However, a number of economists believe that the country’s mature economy and developed infrastructure makes it a prime location for speculative investors.<\/p>\n Speaking to BusinessTech<\/a>, Efficient Group chief economist Dawie Roodt previously said that a junk rating for South Africa would push investors away from South Africa, but also draw others.<\/p>\n He said that a developed economy like South Africa’s would ultimately hit a level of appeal where it would be impossible for investors to ignore. This view has now been echoed by a number of economists.<\/p>\n Investment specialist at Investec Asset Management Louis Niemand told Reuters\u00a0that South African\u00a0bonds at 9%\u00a0“offer a very decent yield, considering that inflation in the medium to long term is expected at 6% to 7%”.<\/p>\n “It means you’d get a good 2% to 3% real return on bonds,” the investor said.<\/p>\n Another\u00a0investment specialists said that, were South Africa to reach “9\/12” levels again – when the South African markets crashed sharply – the country “would be a screaming\u00a0‘buy'”.<\/p>\n The only thing that would counter this appeal, would be intense political turmoil\u00a0fundamentally impacting\u00a0central bank independence, fiscal policy and economic growth, the report said.<\/p>\n Ratings agencies, Fitch\u00a0and\u00a0Standard & Poor\u2019s, currently have\u00a0South Africa rated at one notch above junk status \u2013 with\u00a0the former having\u00a0a stable outlook,\u00a0and the latter a\u00a0negative outlook.<\/p>\n Both firms have been in communication with the South African government about the economic conditions in the country \u2013 which are bleak \u2013 and are expected to make assessments in the coming months.<\/p>\n Standard Bank chief economist Goolam Ballim has said that the country to pray for the best, but expect the worst outcome.<\/p>\n This is how close South Africa came to a recession in 2015<\/a><\/strong><\/p>\n South Africa GDP grows above expectations<\/strong><\/a><\/p>\n Why South Africa will enter recession this year<\/strong><\/a><\/p>\n Recession still a reality in South Africa<\/a><\/strong><\/p>\nMore on the SA economy<\/h3>\n