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As global tensions are on the rise and a Moody’s credit rating downgrade looms on South Africa – Maarten Ackerman, Chief Economist and Advisory Partner at Citadel joins CNBC Africa for an investors’ guide to 2020.

Maarten Ackerman’s insights on what should guide investors guide in 2020

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The launch of a smartphone manufacturing plant, introduction of electric cars, a logistics facility and an upgrade of the country&#8217;s credit rating were some of the defining moments in Rwanda&#8217;s economy this year. Economic Analyst, Ted Kaberuka joins CNBC Africa for more.

A review of the Rwandan economy in 2019

JOHANNESBURG (Reuters) &#8211; South Africa faces a prolonged period of weak economic growth marked by rising unemployment, inequality and greater credit-rating risk if the government does not act fast to implement reforms, the International Monetary Fund (IMF) said on Monday.



“The FY20/21 budget to be presented in February should articulate measures to address fiscal and SOE challenges and stabilize government debt,” the global lender said in statement at the conclusion of a 2-week, Article IV visit to the country.



“Failure to implement the needed adjustment in government and SOE (state-owned entities) spending and efficiency will worsen debt dynamics, erode financial stability, and further raise the country risk premium.”



Reporting by Mfuneko Toyana; Editing by Mark Heinrich

IMF says South Africa at risk if economic reforms don’t materialise fast

JOHANNESBURG &#8211; South Africa’s rand firmed on Friday as an unexpected bounce in Chinese factory activity helped offset concerns over prospects of a U.S.-China trade pact and skittishness ahead of a long-awaited decision on South Africa’s credit rating.



The rand traded at 15.0600 versus the greenback by 0505 GMT, 0.31% stronger compared with the previous day’s close.



The currency had been losing ground following a bleak budget speech on Wednesday, where Finance Minister Tito Mboweni slashed growth forecasts and predicted ballooning debt.



That raised fears that South Africa could lose its last investment-grade credit rating on Friday, when Moody’s is set to announce its ratings decision following a review, also knocking confidence in the rand.



However, investor sentiment was given a boost on Friday after a survey showed that manufacturing activity in China expanded at its fastest pace in more than two years in October, lifting Asian shares.



Throughout the day, though, the rand is likely to be driven by Moody’s decision. Peregrine Treasury Solutions said in a note there was no telling the impact a negative adjustment in its rating could have: “For now, it’s just sit back and hold tight, with a new support level of R15.00 having been set.”



Government bonds inched lower, with the yield on benchmark 2026 instrument rising 1 basis point to 8.505%.



Reporting by Emma Rumney; Editing by Aditya Soni

Unexpected bounce in Chinese factory activity lifts South African rand ahead of Moody’s review

JOHANNESBURG (Reuters) &#8211; South Africa’s state power utility Eskom urgently needs a turnaround plan as its capital structure is unsustainable, credit ratings agency Moody’s said on Tuesday in a report which sent the rand lower.



“The company’s operational and financial performance has deteriorated, indicating the extent of the challenges facing Eskom in meeting its debt obligations absent government support,” Moody’s said in a note.



Eskom reported a mammoth 20.7 billion rand ($1.39 billion) annual loss a week ago. [nL8N24V5CB]



($1 = 14.9196 rand)



Reporting by Alistair Smout; Editing by Jan Harvey

South Africa’s state power utility Eskom urgently needs turnaround plan – Moody’s

JOHANNESBURG (Reuters) &#8211; Ratings agency Fitch on Friday affirmed South Africa’s credit rating at ‘BB+’, in sub-investment grade, but downgraded the outlook from stable to negative, citing a widening budget deficit and spending on supporting struggling state firms.



Fitch said it believed significant progress in restructuring the state power firm Eskom would be challenging, and that downward revisions to economic growth forecasts in 2019 raised new questions about South Africa’s growth potential.



Reporting by Alexander Winning; Editing by Kevin Liffey

Fitch affirms South Africa credit rating but downgrades outlook from stable to negative

By <a href="https://theconversation.com/profiles/misheck-mutize-331377">Misheck Mutize</a>, <a href="http://theconversation.com/institutions/university-of-cape-town-691">University of Cape Town</a>

International credit rating agencies have had their fair share of <a href="https://www.cfr.org/backgrounder/credit-rating-controversy">controversies</a> over the years. They have been at the centre of the major financial crises from the financial markets collapse of <a href="https://digital.lib.washington.edu/researchworks/bitstream/handle/1773/40208/Reagan_washington_0250E_17396.pdf?sequence=1&amp;isAllowed=y">New York City in the mid-1970s</a>, the <a href="https://mpra.ub.uni-muenchen.de/36469/2/MPRA_paper_36469.pdf">Asian financial crisis</a> of 1997 – 1998, the <a href="https://www.nytimes.com/2001/11/29/business/enron-s-collapse-rating-agencies-debt-rankings-finally-fizzle-but-deal-fizzled.html">Enron scandal</a> of 2001, to the <a href="https://truthout.org/articles/the-indisputable-role-of-credit-ratings-agencies-in-the-2008-collapse-and-why-nothing-has-changed/">global financial crisis of 2008</a>. All of these cost investors globally billions. 

Rating agencies are meant to give comfort about an issuer’s ability to repay debt. Ratings are essential in determining the level of interest rate that a borrower must pay. Inaccurate ratings therefore distort both the prices of debt instruments and the interest rates payable on them. As history has shown, this creates asset bubbles that eventually burst, disrupting the functioning of financial markets.

The three dominant international credit rating agencies – Standard &amp; Poor’s, Moody’s and Fitch – have been accused of many faults including:

<ul>
<li><a href="https://www.rt.com/business/421033-sp-credit-agency-lawsuit/">false ratings</a>; </li>
<li><a href="https://www.dailymaverick.co.za/article/2018-08-28-moodys-to-pay-16-mn-over-flawed-credit-ratings/">flawed methodology</a>; </li>
<li>encroaching on <a href="https://openaccess.leidenuniv.nl/bitstream/handle/1887/54340/2016_Luten_PA_IEG.pdf?sequence=1">government policy</a>; </li>
<li>political <a href="https://journals.sagepub.com/doi/abs/10.1177/0010414017710263">bias</a>, </li>
<li><a href="https://erf.org.eg/wp-content/uploads/2018/02/Abdullah-Yalta.pdf">selective aggression</a>;</li>
<li>and <a href="https://www.ft.com/content/852a0672-3904-11e4-9cce-00144feabdc0">rating shopping</a>. </li>
</ul>

These shortcomings originate from their ‘issuer-pay’ business model. The institution being rated pays for the rating which is used by investors. This means that the model has an inherent conflict of interest. 

Although this has been evident through various crises – most notably the financial meltdown in 2008 – regulatory mechanisms are yet to address this problem. And, despite these known weaknesses, rating agencies are still being referenced in key financial market decisions.

<h2>Why current regulations aren’t working</h2>

A <a href="https://www.researchgate.net/publication/228203856_The_Issuer-Pays_Rating_Model_and_Ratings_Inflation_Evidence_from_Corporate_Credit_Ratings">number of studies</a> have identified the issuer-pay revenue model as a key driver of conflict of interest. Here are four reasons why I think the current attempts to regulate ratings agencies will not address conflict of interest.

The first big problem is the relationship between the rating agencies and the issuers. This relationship naturally creates pressure for both the lead rating analyst – around which the whole <a href="https://www.moodys.com/sites/products/ProductAttachments/mis_ratings_process.pdf">rating process</a> is centred – and the ratings committee to give favourable ratings over time. 

This is how the process works: after an issuer contracts a rating agency, the ratings agency assigns an analytical team (lead and support analysts) to gather information about the entity from different sources they deem credible. The analytical team makes recommendations to a ratings committee, convened by the lead analyst. The lead analyst also <a href="https://www.moodys.com/sites/products/ProductAttachments/mis_ratings_process.pdf">determines</a> the size and composition of the ratings committee based on the size and the complexity of the credit analysis. 

The second problem is that rating agencies are bound to be concerned about the sustainability of their revenue sources because they’re profit driven businesses. They will fight to protect their income at the expense of aggressive or objective ratings that could compromise revenues, although in the long-run will damage their businesses. 

The third problem is that the individual employees of a rating agency face no <a href="https://www.jstor.org/stable/23074028?seq=1#metadata_info_tab_contents">criminal liability</a>. Conflict of interest usually manifests itself through members of the analytical team.

Lastly, the credit ratings industry is highly concentrated. Moody’s Investors Service and Standard &amp; Poor’s together control 80% of the global rating market. Fitch Ratings accounts for a further 15%. The ‘big three’ credit rating firms seek to maintain dominance in the industry through discouraging any <a href="https://www.livemint.com/opinion/online-views/opinion-rotation-of-credit-rating-agencies-must-be-avoided-1556058549186.html">activities</a> that may lead to a loss in their market share. They are unwilling to <a href="https://hbswk.hbs.edu/item/why-competition-may-not-improve-credit-rating-agencies">allow competition</a>, suggesting that it could instead lead to poor ratings. 

<h2>Responses</h2>

Following the 2008 Global Financial crisis the <a href="https://www.sec.gov/news/press-release/2017-238">US</a>, <a href="https://ec.europa.eu/info/law/credit-rating-agencies-regulation-ec-no-1060-2009_en">European Union</a>, <a href="http://www.csrc.gov.cn/pub/csrc_en/about/">China</a> and <a href="https://www.fsca.co.za/Regulated%20Entities/Pages/LR-Credit-Ratings.aspx">South Africa</a> introduced legislation to address the flaws in rating agencies’ operations.

Although strict civil laws are necessary to deter misconduct and encourage compliance, enforcing civil regulations only is both an ineffective and expensive way of <a href="https://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=7408&amp;context=jclc">curbing conflict of interest</a>. Tighter scrutiny of credit rating agencies by investors, regulators and media is also not effective.

Despite these regulatory responses, rating agencies are still being caught on the wrong side of the law. Recent cases are proof of this. But there’s still the possibility that a great deal of wrongdoings go undetected.

Earlier this year the European Securities and Markets Authority <a href="https://www.esma.europa.eu/press-news/esma-news/esma-fines-fitch-%E2%82%AC5132500-breaches-conflict-interest-requirements">fined</a> the Fitch group of companies in France, Spain and United Kingdom a total of €5 132 000 for failing to maintain independence and avoiding conflict of interest. Fitch UK, Fitch France and Fitch Spain issued ratings on Casino Guichard-Perrachon, Fondation Nationale des Sciences Politiques, and Renault. This was despite the fact that they knew one of their shareholders – which indirectly owned 20% shares in each of the Fitch group companies – was also a board member of the rated companies.

In 2018, China <a href="https://www.bloomberg.com/news/articles/2018-08-20/chinese-rating-company-dagong-issues-apology-after-one-year-ban">suspended licences</a> held by Dagong Global Credit Rating, one of China’s biggest agencies. Dagong was found guilty of submitting false information to regulators and charging borrowers very high fees, actions that regulators said compromised the rating agency’s independence.

In South Africa, the Financial Sector Conduct Authority recently found the <a href="https://gcrratings.com/regulatory-environment/">Global Credit Rating Agency</a> guilty of failure to avoid a conflict of interest. The agency was <a href="https://www.fin24.com/Companies/Financial-Services/hefty-fine-for-credit-rating-agency-over-conflict-of-interest-breach-20190430">fined</a> an administrative penalty of R487 000. The CEO of the GCR undertook to an issuer, whose credit rating had expired, that the GCR would issue a credit rating. This was contrary to the rules that required the CEO to act separately from the agency’s rating analysis team. 

At the time of undertaking, the issuer was the process of procuring the services of a rating agency, a process in which global agency was one of the bidders.

<h2>Shortfall in regulatory mechanism</h2>

The continuing infringement by credit rating firms on rules and analysts’ actions that compromise the independence of their opinions shows there is a major shortfall in the current regulatory mechanism.

Although problematic, abandoning the ‘issuer-pay’ business model is not the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3270894">solution</a> and will push some rating agencies out of business. 

The only solution is to criminalise rating misconduct such as breaching conflict of interest. The strict monitoring, scrutiny and penalising of credit rating firms alone will not be enough to deter bad behaviour. Individuals responsible for breach of conflict of interest rules should face criminal prosecution. If this does not happen, analysts will not hesitate to take chances.<img decoding="async" loading="lazy" src="https://counter.theconversation.com/content/117549/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important" />

<a href="https://theconversation.com/profiles/misheck-mutize-331377">Misheck Mutize</a>, Lecturer of Finance, Graduate School of Business (GSB), <a href="http://theconversation.com/institutions/university-of-cape-town-691">University of Cape Town</a>

This article is republished from <a href="http://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/why-credit-rating-agencies-are-still-getting-away-with-bad-behaviour-117549">original article</a>.

Credit rating agencies continue to get away with bad behaviour, here’s why

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After the much anticipated Moody’s credit rating on South Africa being reprieved last week Friday, Yesterday they released a credit opinion on South Africa. Moody’s has relieved the country as they have left the rating at Baa3 with a stable outlook. Although the credit opinion does not constitute a rating action, this saw a positive push to the rand and other South African sectors. ABSA Senior Economist, Peter Worthington joins CNBC Africa for more.

Peter Worthington on what SA should do to improve its credit rating

CAPE TOWN (Reuters) &#8211; South Africa expects Moody’s to release its ratings review after next week’s medium term budget policy statement (MTBPS), Dondo Mogajane, the director general of the National Treasury said on Tuesday.
Mogajane said he met Moody’s representatives at an international financial conference in Bali last week and told Reuters that the ratings agency “will obviously get back to us after the MTBPS.”
Moody’s, the last of the top three agencies to still rate the country investment grade, did not publish the review on Friday as was widely expected.
Reporting by Wendell Roelf; Writing by Mfuneko Toyana; Editing by James Macharia

South Africa’s ratings review to be released by Moody’s after Medium term budget

JOHANNESBURG (Reuters) &#8211; Moody’s stable outlook on South Africa’s credit rating means there is little chance of a downgrade this year, the ratings agency said on Thursday, but warned that a commitment to fiscal consolidation would be key to maintaining its rating.
The agency, the last of the top three ratings firms to have Pretoria’s long-term foreign-currency debt in investment grade, however said a recovery in South Africa’s economic growth will be slow and less than the Treasury’s estimate of 1.5 percent for 2018 after a surprise contraction in the first two quarters.
South Africa entered recession for the first time since 2009, data showed last week, undermining President Cyril Ramaphosa’s efforts to revive the economy after years of stagnation under former president Jacob Zuma.
Lucie Villa, Moody’s lead analyst for South Africa, said the rising share of government revenue that South Africa spends on debt servicing was a concern for Moody’s, but that she expected some fiscal adjustment in the October budget statement.
“Growth is going to be below 1 percent, to what extent it’s difficult to say,” Villa told the agency’s annual Sub-Saharan Africa conference, referring to this calendar year.
“South Africa has a stable outlook, &#8230; there is little chance of a rating action,” Villa said, in response to a question about whether Moody’s would downgrade the country’s sovereign rating at a review scheduled for next month.
Moody’s has previously said the slide into recession would exacerbate fiscal and monetary challenges. It said weaker-than-expected economic data was “credit negative”.
Villa said two ratings strengths for South Africa was that its government debt had a long maturity and that relatively little of the debt was foreign-currency denominated.
“It’s very important what announcement will be made (at the October budget statement), &#8230; what we think is going to be critical is the wage bill, tax revenues,” she said.
Villa said plans by the ruling African National Congress (ANC) to nationalise the Reserve Bank were not “rating-relevant,” assuming that the bank’s mandate would not be affected.
The central bank has said any change of ownership would not affect its mandate or independence.
Africa’s most developed economy needs faster economic growth if it is to reduce high unemployment &#8211; currently at 27 percent &#8211; and alleviate poverty, analysts say.
Unemployment is a hot-button issue ahead of national elections in 2019, and the ANC has made repeated pledges that things will improve.
($1 = 14.8287 rand)
Writing by James Macharia

What are the chances of a downgrade for South Africa’s credit rating? Here’s what Moody’s has to say…

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KCB Bank Rwanda has affirmed its commitment to digital solutions, as the country move to universal financial inclusion by 2020.

KCB Bank Rwanda affirms commitment to digital solutions

By Tiisetso Motsoeneng
Barclays&#8217; plan to sell its African business and pull out of the continent are being hindered by South Africa&#8217;s political upheaval and credit-rating downgrades, according to banking sources and fund managers.
The British bank gave itself 2-3 years to sell its controlling stake in Johannesburg-based Barclays Africa when it announced the plan in early 2016, and sold 12 percent last May in an &#8220;accelerated bookbuild&#8221; &#8211; a share sale held over a short period of time.
It had been planning another accelerated bookbuild in the last two weeks but pushed it back because of concerns over investor appetite due to political and economic uncertainty in South Africa, according to a banking source familiar with the plans.
The source, who asked not to be named as they are not authorised to speak publicly, did not say when the deal might now take place.
A spokesman for Barclays in London declined to comment.
South Africa has been mired in business uncertainty since late last year when the ruling African National Congress (ANC) pledged to radically transform the economy following losses in local elections that were partly caused by anger over deep inequality that persists more than two decades after apartheid.
It said it would redistribute the wealth of the country to the black majority, but has not outlined how it plans to do so.
Investor unease increased significantly two weeks ago with the sacking of respected finance minister Pravin Gordhan which led to S&amp;P Global Ratings cutting the credit rating of South Africa and its banks to junk.
Fitch also pushed Pretoria&#8217;s debt into junk territory and is expected to also downgrade local banks in the coming days because their large exposure to sovereign debt closely links their credit profile to that of the government.
The downgrades have heightened the risk of a prolonged economic stagnation and rattled investor confidence in banks, whose performance is closely linked to the economy, wiping out more than 132 billion rand ($9.5 billion) from their market value in two weeks.
The pool of potential buyers to which Barclays&#8217; can sell shares in its African business to is also shrinking, according to bankers, because the mandates of some institutional investors, including some pension funds, do not allow them to hold an asset that&#8217;s sliding on credit ratings.
<blockquote>&#8220;Barclays Plc have to make a tough call – go ahead and sell Barclays Africa at a low enough price that will attract investors or wait, possibly a few years, until the situation has stabilised,&#8221; said Kokkie Kooyman, portfolio manager at Dekker Capital in Cape Town.</blockquote>
&#8216;PAYING PRICE&#8217;
The British bank said early last year that it planned to reduce its 62 percent stake in its African business to below 20 percent by 2019 as part of its plan to exit Africa to focus on the United States and Britain.
As well as hindering its global strategy, delays in the sale timetable could throw up regulatory problems.
Barclays is partly relying on funds raised from the stake sale to meet capital requirements that were identified as a concern by the Bank of England in a November &#8220;stress test&#8221; aimed at gauging its ability to withstand financial shocks.
The lender faces the annual test again late this year, and the British regulator could ask it to submit plans to raise extra capital if it has not met the requirements.
Barclays is increasingly looking at selling its remaining 50 percent stake in chunks because it is struggling to find one strategic buyer that will satisfy South African regulators, sources have previously said.
Barclays Africa earns more than 80 percent of its revenue in South Africa, but also operates in nine other including Kenya, Ghana, Botswana and Mozambique.
It has been hit hard by the economic uncertainty and credit downgrades in South Africa, along with domestic peers Standard Bank, Nedbank and FirstRand. They are heavily dependent on wholesale funding sources such as bonds, whose costs have surged following the downgrades, and exposed to the effects of economic problems such as rising unemployment.
South Africa&#8217;s &#8220;top four&#8221; banks have shed between 7 and 13 percent over the past two weeks.
Faced with possibility of losing more supporters in the 2019 national elections, the ANC party has pledged to overhaul the economy, with the central plank being the redistribution of wealth, but has not disclosed details of its plans.
The policy is aimed at winning back core voters in a country where black people make up 80 percent of the 54 million population, yet the lion&#8217;s share of the economy in terms of ownership of land and companies remains in the hands of white people, who account for around 8 percent of the population.
<blockquote>&#8220;Banks are paying the price for political uncertainty that we&#8217;ve seen in the country over the past two weeks,&#8221; said Ron Klipin, a fund manager at Cratos Capital in Johannesburg.
&#8220;As an investor, when you hear words like &#8216;radical economic transformation&#8217;, it creates some uncertainty in terms of the economic policy, in terms of further downgrades and the cost of funding for banks.&#8221;</blockquote>
($1 = 13.8876 rand)
(Additional reporting by Lawrence White in London; Editing by Pravin Char)

South African tumult hinders Barclays’ exit from continent

South Africa&#8217;s weak economic growth and heightened political risk are a risk to its investment grade sovereign credit rating, the central bank said on Wednesday.
In its second and last financial stability review for 2016, the Reserve Bank also said thin liquidity was a recurring problem for the rand currency, and it would closely monitor conditions in the currency market.
Africa&#8217;s most industrialised economy is only expected to expand by 0.5 percent this year, down from a target of 0.9 percent the Treasury set in February.
The central bank also cut its own estimate to 0.4 percent in September, and kept interest rates on hold as a result, despite inflation pressures.
&#8220;The low economic growth is presenting headwinds to the domestic banking sector and has put the country&#8217;s sovereign credit rating at risk,&#8221; the bank said. &#8220;Key threats to the country&#8217;s sovereign rating also include heightened domestic risk.&#8221;
Ratings agencies, which are due to review South Africa&#8217;s rating before the end of the year, have warned of downgrades over the underperforming economy, and the political turmoil.
Moody&#8217;s rates South Africa two notches above subinvestment grade, with a negative outlook, while Fitch and S&amp;P Global Ratings have it just a step above &#8220;junk&#8221;.
Investors have been jittery since President Jacob Zuma inexplicably changed finance ministers twice within a week in December, replacing the well-respected Nhlanhla Nene with an relatively unknown junior politician.
Zuma re-appointed Nene&#8217;s predecessor Pravin Gordhan to calm markets after a run on the rand and government bonds, but an ongoing police probe into Gordhan&#8217;s role in setting up a surveillance unit at the tax department, which police say spied on politicians, has hurt sentiment.
Gordhan, who denies any wrong doing, has called the investigation, as well as fraud charges, which were later dropped, politically motivated. Prosecutors have rejected the accusation.

Cenbank : S.Africa&#39;s low economic growth a risk to credit rating.

South Africans have been arguably living with a sword over their heads since the beginning of 2016: the imminent downgrade of the country’s sovereign credit rating to non-investment grade levels by global ratings agencies.
Andrew Morton, Head of Advice at FNB Financial Advisory says most local investors and prudent advisors have already factored the potential occurrence into their investment planning, by ensuring that diversification is in place, including offshore exposure.
“There are numerous potential consequences of a ratings downgrade including the fact that South African bonds would be deemed ‘riskier’- meaning investors will require higher yields on their investments. Investors with existing exposure to the bond market would see their capital values negatively impacted.”
“Stock Market investors would also take a hit. Looking more broadly, the economy would inevitably take a knock, credit would be harder to come by, the banks would tighten the reins on lending, and investment and business development would be curtailed as a result. The rand would weaken, driving inflation and taxes higher,” he adds.
An important starting point for investors concerned about the knock-on effect to their portfolios and wealth legacy is the fact that those with existing investments actually stand to benefit in terms of higher interest rates. This benefit is likely to attract bolder, yield-seeking international investors, eager to take advantage of attractive interest rates, despite the perception of ‘riskiness’.
“The reality is South Africans will still be living, working and paying taxes in this economy. If you live in South Africa you will always be invested here as long as you have a house, pension fund, savings, investments and school-going children. However, what you can do is insulate yourself somewhat from the in-country impact of a downgrade by ensuring you have adequate exposure to other markets. Whether a rating downgrade happens or not, this approach will inevitably leave a savvy investor better off and more able to weather other global contagions,” says Morton.
Most high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals already have offshore exposure factored into their diversified portfolio strategy. The market segment needing assistance in this regard is the R350 000 to R1.5 million income bracket.
“While these clients, like their HNW compatriots, are often extremely good at making money and frequently experts in their field, they often have little idea of how markets, risk tolerances and offshore exposure work. The first step is educating them about how risk management plays out in different market conditions and the vagaries of currency movements,” he adds.
Morton says, the years following a downgrade will surely prove challenging for all South Africans, especially those in the lower and middle-income brackets.
“Those with significant wealth legacies will also feel the effects and the biggest lesson will be one of patience and trust. Even without a downgrade South Africa’s economy is likely to remain an environment of low growth and little or no real returns for some time to come. Right now, the role of a financial adviser is of paramount importance.”
A professional advisor needs to remove the emotion from an investment decision, by understanding that one cannot time markets or currency movements, but needs to stay invested for the duration of the pre-determined period.”
Risk management at times like this is all about time periods and managing expectations. Given the current uncertainty in the South African market, it is recommended that clients consider a long-term view. This is for the simple reason that even if you are sitting in a money market, you are introducing another risk. The longer you let the investment play out, the less that risk becomes.
“Rest assured that any impact of a South African credit downgrade has already been factored into the local market and the investment world. By the time any announcement is made by S&amp;P, Fitch or Moody’s, there will be little impact that astute investors haven’t already foreseen and made provision for. Now is the time for executing plans and sticking your guns. You and your financial legacy will be stronger as a result,” concludes Morton.﻿

Impact of a S.A ratings downgrade on investors

The probability of a credit rating downgrade for South Africa is about a third, Moody&#8217;s said on Tuesday, warning however that a cut was likely if economic growth fell below its estimated growth of 0.2 percent this year.
Moody&#8217;s currently rates Pretoria two notches above sub-investment grade at Baa2 with a negative outlook, and has warned that political infighting, weak economic growth and mounting debt at state-owned companies all pose a downward risk.
Moody&#8217;s analyst Kristin Lindow also told an annual conference in Johannesburg that the agency it did not expect to upgrade the Baa2 rating for Africa&#8217;s most industrialised country in the near future.
&#8220;Fundamentally because the rating has a negative outlook, we don&#8217;t expect that we would upgrade the rating in the near future,&#8221; Lindow said.
&#8220;We would likely downgrade the rating in the absence of a growth recovery that we are anticipating &#8230; that takes growth to around 2 percent gradually over the next several years.&#8221;
Moody&#8217;s expects South Africa&#8217;s growth to tick up to 1.1 in 2017 and 2.0 percent the year after. It&#8217;s next review of South Africa is expected on Nov. 25.
&#8220;We have a negative outlook which means the risks (to the rating) are tilted to the downside,&#8221; Moody&#8217;s analyst Zuzana Brixiova told reporters on the sidelines of the conference.
&#8220;But having said that &#8230; fundamentally we expect that the probability of a downgrade is less than 50 percent, it’s about one-third.&#8221;
South Africa&#8217;s central bank has forecast that growth will be at zero percent this year.
Brixiova said any move to replace Finance Minister Pravin Gordhan, who is at the centre of a police probe, would only be an issue if it threatened the continuation of current economic policy.
Political and financial analysts say that the investigation on Gordhan is part of a plan by allies close to President Jacob Zuma to remove Gordhan from his position.
The analysts say Zuma and Gordhan are locked in a power struggle over spending at state-owned companies and plans for a multi-billion dollar nuclear power programme backed by the president but which the Treasury opposes. Zuma has denied there is a &#8220;war&#8221; between the Presidency and Treasury.
 
(Reporting by Stella Mapenzauswa; Editing by James Macharia)﻿

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