Tag: junk status

South Africa is in the eye of a slow-building economic storm: junk status, political upheaval, civil unrest, spiralling unemployment, state capture and the fallout from COVID-19. There is no better time to assess the impact of one of the biggest economic experiments in Africa that began a quarter of a century ago: black economic empowerment, or BEE, the legislation-backed effort to transfer wealth to black people and to facilitate their broader participation in the economy to redress the inequalities created by apartheid.

2020 has been an unusual and challenging year in many ways, particularly in global markets. This article speculates on the outlook for forex traders in the months to come. With the US Elections still fresh in our minds; a COVID-19 vaccine on the horizon and the South African economy still under significant strain, 2021 is going to be a revealing year.

Moody’s and Fitch downgraded SA’s foreign-currency sovereign rating and its local-currency rating.

The immense socio-economic impact under one of the world’s most extreme lockdown’s during the COVID-19 pandemic has resulted in South Africans uniting for their voices to be heard under a grassroots movement called Move One Million.

South African investors are still absorbing the twin blows of being downgraded by Moody’s into junk territory and, just four days later, the expected Fitch decision to take the South African sovereign debt rating down a further notch into junk territory.

Recent weeks have seen the local market hit by a triple whammy. Both local and global markets have crashed as the economic impact of the COVID-19 pandemic begins to be felt resulting in a market sell-off; a rapid decline in oil prices has created a global supply shock. In addition to that, ratings agency Moody’s downgraded South Africa’s credit rating to junk or sub-investment grade.

Moody’s finally dropped the sword on South Africa on Friday evening, following in the steps of fellow ratings agencies S&P and Fitch in downgrading the country’s sovereign credit rating to sub-investment grade or 'junk status'. And the COVID-19 crisis and current lockdown mean that even before factoring in the impact of Moody’s decision, the economic outlook for SA in 2020 is harrowing.

As most South Africans eagerly awaited some reprieve from a year of constant and negative bombardment, be this over matters such as a massively contracted economy, rising unemployment, state capture, rising corruption and the threat of expropriation of property without compensation, many had hoped to return from their annual vacation rested, and hopeful to hear some positive news. This did not happen.

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 country’s economic junk status is a direct result of policy intransigence. Current government decisions appear to be based on a lack of consideration for the lessons of history. Economies are fragile. Persistent adverse policy-making breaks down an economy, reduces productive investment and economic activity, and causes untold harm to citizens.