Following similar sentiments from local economist Dawie Roodt, international investment firm JPMorgan has advised investors to get out of the rand ahead of a possible junk rating downgrade.<\/p>\n
\u201cThe market is too optimistic that downgrades would be postponed and\/or on the outcome of the ANC\u2019s December elective conference,\u201d said Anezka Christovova, a foreign exchange strategist at JPMorgan, quoted in an investor note<\/a><\/strong> sent out this week.<\/p>\n \u201cWe share neither of these hopes,” she said. \u201cWe believe current ZAR levels reflect complacency in the face of imminent sovereign rating downgrades.”<\/p>\n \u201cCurrently USD\/ZAR is only 1.5% weaker than what is consistent with US yields and an index of other EM FX. In periods of stress, this deviation can easily rise to 5-10%,\u201d Christovova said.<\/p>\n While South Africa has already faced a downgrade to full junk status by at least one ratings firm (Fitch), both S&P Global and Moody’s have a the country at head above water.<\/p>\n S&P has downgraded South Africa’s foreign currency debt to junk, but because the country’s debt is mostly carried in rands (which is still one notch above junk at S&P) the full impact of sub-investment grade has not yet been felt.<\/p>\n Moody\u2019s is currently the only agency that has SA above wholly above junk status, with both local and foreign currency debt sitting at one notch above junk.<\/p>\n If South Africa loses both its investment grade ratings, however, its government bonds would be excluded from the Citi WGBI local-currency bond index.<\/p>\n This would see index tracking funds and investment grade credit funds forced to sell their South African holdings, and as a result, Christovova believes that sovereign\u00a0rating downgrades by both S&P and Moody\u2019s would trigger about $5 billion – $7 billion (R70 billion to R100 billion) of forced outflows.<\/p>\n She also noted that JPMorgan was skeptical\u00a0that the December ANC conference would bring any relief from “the structurally low growth and fiscal challenges”, and that the “continued\u00a0fiscal deterioration also depresses substantially the long term fair value for ZAR.\u201d<\/p>\n Local analysis<\/strong><\/p>\n On Monday, economist Dawie Roodt advised <\/a><\/strong>South Africans to take their money out of the country amid looming downgrades which would send the economy into another recession.<\/p>\n