S.Africa downgrade unlikely to affect bond outflows - CNBC Africa

S.Africa downgrade unlikely to affect bond outflows


by Trust Matsilele 0

S.Africa downgrade unlikely to affect bond outflows. PHOTO: Getty Images

Gareth Brickman, a market strategist at ETM Analytics told CNBC Africa that according to recent figures, there has not been any market outflows from bonds adding that equities had actually increased.

(READ MORE: Fitch cuts S.Africa's debt outlook)

“The S&P ratings agency has maintained a negative outlook since last year so it has not yet telegraphed that South Africa's fiscal affairs iare under scrutiny,” he said.

“In the weeks leading up to the decision we did see an effect of bond inflows slowing and South African bonds underperforming.”

South Africa was placed in the same categories with other BRICS nations by the ratings agency, however Brickman added that this was not supposed to bring comfort to South Africa.

“These countries have their own structural problems and certainly we would not want to be compared to them. We are grouped with countries with external deficit issues,” he noted.

Brickman added that, South Africa’s credit risk metrics and bond yields have already been pointing to a rating lower than it already was adding that this was unlikely to affect investors, at least for now.

“We only have one ratings agency that has downgraded the country but we need two ratings agencies before we start seeing institutional investors and funds reacting to that,” Brickman said. 

“According to recent figures, there has not been any market outflows from bonds, and equities have actually increased.”


He further noted that going forward, the country needed to demonstrate its willingness to build the economy by investing more in infrastructural projects.

He said that sovereign ratings on parastatals that spearhead infrastructural projects was determined more by government guarantees.

“The sincerity of the government as far as infrastructural projects like Medupi will be known when the state presents its mid-term budget later in the year,” he said.