Credit ratings: where to now?

STABLE: AGENCIES, MARKETS REACT WELL

Moody’s kept SA’s sovereign debt at above investment grade and changed its outlook to stable recently. But we’re a while away from the full impact.

The tumultuous Jacob Zuma reign has ended and we’re seeing the start of the more economically stable Cyril Ramaphosa era. But ratings agencies’ mandates are simple: to determine a forward-looking opinion of a nation’s creditworthiness.

It is critical to consider the short- and long-term effects of political change.

So far, Ramaphosa and his reshuffled cabinet have managed to halt the downward spiral, by improving international markets’ sentiments towards foreign direct investment in SA.

In the short term, we’re likely to see increased levels of foreign investment into SA-run businesses.

This inflow of money will give SA institutions access to the capital they need to grow, and if government can successfully, sustainably address the issues it has targeted, it’s not far-fetched to dream of a credit ratings upgrade.

Longer term, improved market sentiment and accelerated economic growth could yield greater demand for workers and reduce unemployment.

Rising earnings for SA companies could also yield an increase in the share prices of JSE-listed entities and, possibly, a decrease in rand hedge stocks’ share prices.

A strengthening rand could see reduced inflation levels (and rate cuts), as the cost of imported goods begins decreasing.

Greg Morris is MICROmega Holdings CEO.