Moody’s to cut South Africa’s sovereign credit rating to junk – economists

News

The African billionaire who wants COVID-19 to bounce off business

“It was actually a word from my grandson, Sam, that said we have been privileged for quite some time as South Africans and in a crisis like this you need to give something back to the country"

Harmony Gold sees lower gold production during 21-day lockdown

Harmony Gold Mining Company said on Tuesday that it expects limited gold production during the 21-day lockdown in South Africa in the wake of the fast-spreading coronavirus.

Tanzania confirms first coronavirus death

Tanzania confirmed its first coronavirus death on Tuesday, Health Minister Ummy Mwalimu said in a statement.

JOHANNESBURG (Reuters) – Moody’s will cut South Africa’s sovereign credit rating later on Friday as a recession deepened by the impact of coronavirus frustrates economic reform efforts aimed at reducing government debt, a Reuters poll of economists found.

Taken in the last three days, the survey showed 12 of 18 respondents saying Moody’s, the only major credit rating agency that still rates South Africa’s bonds as investment-grade, will cut them to “junk” status. Standard & Poor’s and Fitch both cut their ratings to junk nearly three years ago.

Eleven economists who answered an extra question said the rating was “still relevant” despite a punishing market sell-off that has overshadowed the long-awaited decision, while five said it was “important”. Only two said whether or not Moody’s downgrades the bonds to junk was “irrelevant.”

“It may not be a market-moving event at this juncture but is important going forward as sub-investment grade from all three rating agencies will undoubtedly raise the cost of capital or funding in South Africa,” said economist Hugo Pienaar at the Bureau for Economic Research.

The rand, stocks and bonds have been under intense pressure as the pandemic hits asset prices. But many analysts say South African assets have been trading as though they are junk-rated for at least a couple of years already.

“In our view, the Moody’s downgrade itself has for some time been discounted by financial markets, though it remains uncertain exactly what impact the subsequent World Government Bond Index (WGBI) expulsion will have,” said Elna Moolman, economist at Standard Bank.

“Guided by global examples in this regard, it is possible that the bulk of the repricing has already occurred.”

With the virus still spreading, in a worst-case scenario, median forecasts showed South Africa’s economy would shrink by 4% in Q1, 8% in Q2 and 5% in 2020 as a whole, according to the median forecasts from answers to an additional question.

The last Reuters poll prior to the announcement of the 21-day lockdown for South Africa that started on Thursday evening predicted the economy would shrink 0.4% in Q1, then grow 0.9% in Q2 and 0.3% for the year as whole.

“As the country enters a minimum of a three-week lockdown period it means domestic fiscal metrics are likely to get significantly worse this year, with sovereign debt ratios now almost certain to rise,” said Jeffrey Schultz, economist at BNP Paribas.

South African assets recovered on Wednesday after the central bank launched a bond-buying programme, seeking to drum up demand in credit markets as the coronavirus epidemic weighs on the ailing economy.

Christopher Shiells at Informa Global Markets said a downgrade to junk status would probably be seen as a relief by the government as it would free it up to make a significant fiscal response to the crisis.

“Rating agencies are expected to downgrade a number of sovereigns due to the coronavirus. Outflows and asset weakness have been occurring over last month, so the worst has already happened in that sense,” he said.

(Editing by Ross Finley and Catherine Evans)

This article was first published on Reuters Africa https://af.reuters.com/article/investingNews/idAFKBN21E150-OZABS and is republished with its permission.

For more coverage on COVID-19 visit: https://www.cnbcafrica.com/covid-19/

- Advertisement -
- Advertisement -

Featured

How SA’s small businesses can access the R1bn Oppenheimer fund

The richest man in South Africa has stepped in to offer a lifeline to small businesses in these difficult times. Nicky Oppenheimer – worth $7.5 billion dollars as we speak according to Forbes – has pledged a billion rand to fight COVID-19 and help out employees in SMME’s. It will transfer funds to employees through interest free loans and also plans to stimulate economic growth after the crisis. Nicky Oppenheimer joins CNBC Africa for more.

Subscribe to our newsletter

Sign up for free newsletters and get more CNBC AFRICA delivered to your inbox

JSE CEO on Moody’s downgrade & COVID-19 impact

The JSE is expected to see massive capital outflows from the bond market when South Africa gets kicked out the World Government Bond Index because of its junk status rating. But CEO Leila Fourie says the net market fallout may be limited by active fund managers picking up the slack from passive funds that dump our non-investment grade bonds. JSE Group CEO Leila Fourie joins CNBC Africa for more.

How COVID-19 is transforming the way students are educated

In a matter of months COVID-19 has changed how students are educated after numerous countries put forward strict measures and closed schools. Robert Stephanus Kleynhans, Director, SABIS International School Runda joined CNBC Africa to give insight on how the education system in Kenya is responding to these changes and if the new solutions for education could bring much needed innovation in the sector.

The economic cost of Kenya’s COVID-19 curfew

Kenya recently put in place a partial lockdown to curb the spread of COVID-19 with a full shutdown likely to be imposed in light of increasing number of infections. Risk Expert, Caroline Gathii joins CNBC Africa to discuss the economic implications of this curfew.

UK’s health system can be deployed in almost military fashion, analyst says | Squawk Box Europe

Matthew Oxenford, lead U.K. analyst at the Economist Intelligence Unit, discusses Britain's response to the coronavirus pandemic.
- Advertisement -

More Articles Like This

- Advertisement -