Political Outlook<\/strong><\/p>\nThe election of Ramaphosa as leader of the ruling ANC in December, setting him on a path to take over as head of state from the scandal-ridden President Jacob Zuma, has fueled optimism South Africa may avert further credit-rating downgrades as the new leadership takes steps to root out corruption and stimulate the ailing economy.<\/p>\n
Moody\u2019s Investors Service is now less likely to lower the nation\u2019s credit rating when it reviews its assessment in March, according to UBS Group AG. This month, the cost of insuring South Africa\u2019s dollar debt against default for five years has dropped to the lowest level since 2013, when the nation still had investment-grade ratings from three major companies.<\/p>\n
S&P Global Ratings and Fitch Ratings Ltd. cut the country\u2019s debt to junk in 2017 after the removal of Pravin Gordhan as finance minister in March. Moody\u2019s put the nation on review for a downgrade in November. A reduction of the local-currency bond rating to junk would trigger an exclusion of South Africa\u2019s rand debt from Citigroup Inc.\u2019s World Government Bond Index, sparking a selloff by investors tracking the gauge.<\/p>\n
\u201cLackluster growth, high unemployment and a deteriorating fiscal balance sheet require urgent reforms,\u201d UBS strategists including Jonas David, who see the rand holding around 12 per dollar over the next year, wrote in a Jan. 22 note.<\/p>\n
\u201cThe leadership has a window of opportunity to implement changes ahead of the 2019 general elections. Recent developments lower the probability of another downgrade.\u201d<\/p>\n
\nCommodity Prices<\/strong><\/p>\nThe commodity-price boom of the past seven months is providing support for the rand. South Africa depends on raw materials — including precious metals such as gold and platinum, as well as industrial metals – for more than 50% of its export earnings. That\u2019s helped narrow the current-account deficit to 2.3% of gross domestic product, from as wide as 6.9% four years ago, easing pressure on the currency.<\/p>\n
The shrinking external deficit \u201cshould limit the rand\u2019s downside in times of less favorable global conditions,\u201d according to the UBS note.<\/p>\n
\nInvestor Sentiment<\/strong><\/p>\nInvestors are becoming more bullish on South Africa. After dumping almost R47 billion ($3.9 billion) of South African stocks in 2017, foreigners are buying Johannesburg-listed stocks at the fastest pace on record in 2018. That\u2019s helped propel the benchmark index to an all-time high, led by shares of companies that depend on the local economy, such as banks and retailers.<\/p>\n
\u201cSouth Africa itself will be a big story this year,\u201d said John Ashbourne, an economist at Capital Economics. \u201cWe think that the economic cycle as turned, and that growth will accelerate again this year. After years of downbeat forecasts, I think that a lot of analysts will be taken surprise by some good news out of South Africa.\u201d<\/p>\n
\nDollar\u2019s Demise<\/strong><\/p>\nContinuing dollar weakness has supported most emerging-market currencies including the rand, and that\u2019s set to continue in coming months, according to Swedbank AB. A gauge of developing-nation currencies is trading at its strongest level against the dollar in four years.<\/p>\n
\u201cEmerging markets are strong on the basis of a weak dollar and strong commodity prices,\u201d said Hans Gustafson, the chief emerging-market strategist at Swedbank. \u201cOur forecasts have been adjusted upwards for all emerging-market currencies as the dollar has depreciated faster than earlier thought.\u201d<\/p>\n
\nLurking Risk<\/strong><\/p>\nEven if Ramaphosa replaces Zuma as president, he may not be able to force through unpopular fiscal reforms, according to Informa Global Markets. The budget presentation on Feb. 28 will tell whether the government has the will to curb rising debt and a widening budget deficit.<\/p>\n
\u201cWe are reluctant to turn too optimistic on the rand just yet, given somewhat murky medium-term prospects,\u201d said Natalie Rivett, a senior emerging-market analyst at Informa. \u201cWe would expect to see some faltering of the rand as we head closer to the February budget, which will be the next key risk event and could be the deciding factor as to whether Moody\u2019s will deal a blow to the sovereign\u2019s local credit rating.\u201d<\/p>\n
Reuters meanwhile, quoted finance minister Malusi Gigaba as saying that the upcoming budget would require interventions in order to spur on the economy.<\/p>\n
\u201cWhat I will be doing at the budget will be going to announce the tough decisions to stabilise the debt but reduce the budget deficit,\u201d he said, speaking on the sidelines of the World Economic Forum in Davos.<\/p>\n
\u201cWe have to announce tough decisions and South Africans will have to bear some pain (as a result) of some of the decisions we are going to have to announce in order to stabilise our debt,\u201d he said.<\/p>\n
Reporting with Bloomberg.<\/em><\/p>\n
\nRead: This is the \u2018real\u2019 value of the rand against the dollar<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"It\u2019s looking like the latest emerging-market turnaround story: a rebound of about 20% from a one-year low for South Africa\u2019s rand. The question is whether it will stay that way, wrote Bloomberg.<\/p>\n","protected":false},"author":10,"featured_media":212411,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[961],"tags":[],"class_list":["post-221113","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-banking"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/221113","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=221113"}],"version-history":[{"count":4,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/221113\/revisions"}],"predecessor-version":[{"id":221145,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/221113\/revisions\/221145"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/212411"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=221113"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=221113"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=221113"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}