Tag: credit rating downgrade

There was more salt in the wounds for South Africa when Fitch announced that they were downgrading government's credit rating another notch, this follows the announcing by Moody's a week ago that they were also downgrading the credit rating.

The Moody’s downgrade of South Africa’s credit rating should have happened long ago. We’ve known for a long time that our fiscal metrics have been unsustainable, so despite the coronavirus, this is unsurprising.

Moody’s cut both the local and foreign currency-denominated debt from Baa3 to Ba1 and retained the negative outlook. Their statement highlighted South Africa’s deteriorating fiscal situation amidst very weak economic growth, saying: 'The key driver behind the rating downgrade to BA1 is the continuing deterioration in fiscal strength and structurally very weak growth.'

Local investors should stay invested to reap strong future returns. An early decisive response to the COVID-19 threat should contain the spread of the virus in South Africa, but the economic repercussions in the short term will be costly. Local measures to contain the virus will add to an already weak economy and negative global impact.

With low GDP growth, credit ratings downgrades and the COVID-19 pandemic, our economy has taken a knock, leaving many investors’ reluctant to save and invest.

Fears around the coronavirus (COVID-19) outbreak has spilled into financial markets. The coronavirus outbreak has rapidly approached global pandemic levels, and given the knock-on effects of the virus on economic growth, the fireworks in markets were inevitable.

Sparking an immediate celebration in the rand and bond markets, the 2020 Budget Speech ticked all the right boxes for markets, depicting a government that is reform-minded and ready to show its muscles.

Despite various geopolitical and economic challenges at the beginning of 2019, markets managed to deliver very strong returns for the year. And investors will be relieved to see that equity markets look set to start 2020 on a slightly better footing, as many of these uncertainties have been addressed to some extent over 2019.

The probability of a credit rating downgrade from Moody’s does not necessarily equal ‘good’ news for SA’s economic prospects. It is merely the calm before the storm. It would be good news if SA had embarked on one or two of the required reforms – however, this has yet to happen. This temporary reprieve from Moody’s gives SA time to implement some of the changes required to right a seriously listing ship.

From Trump’s trade wars and Brexit woes to the looming threat of a credit rating downgrade in South Africa, rising waves of political and market volatility have left more and more investors wondering whether it wouldn’t be better to keep assets safely tucked away in cash.