Brexit fall­out ex­poses SA

In­vestors are also un­cer­tain

Weekend Argus (Saturday Edition) - - LIFE -

SOUTH AFRICA is the most ex­posed sub-Sa­ha­ran African state to mar­ket volatil­ity and a po­ten­tial shift in in­vestors’ risk per­cep­tions linked to Bri­tain’s de­ci­sion to leave the EU, ratings agency Moody’s said.

“South Africa’s cur­rent ac­count deficit leaves it vul­ner­a­ble to short-term cap­i­tal out­flows amid changes in in­vestors’ risk per­cep­tions and ap­petite,” Moody’s said in a re­port yes­ter­day.

The rand stum­bled nearly 5 per­cent against the dol­lar on June 24, its big­gest daily loss in al­most five years, af­ter Bri­tons voted in a ref­er­en­dum to leave the EU, trig­ger­ing global risk aver­sion.

Be­cause of South Africa’s highly liq­uid mar­ket and its re­liance on port­fo­lio flows to plug a cur­rent ac­count gap of around 5 per­cent, the rand tends to be more sen­si­tive than emerg­ing mar­ket peers to swings in risk ap­petite.

Moody’s said South Africa, al­ready grap­pling with the im­pact of a se­vere re­gional drought and a slide in com­mod­ity prices due to sub­dued de­mand from China, would prob­a­bly avoid a re­ces­sion in 2016.

But the speed of any likely eco­nomic re­cov­ery and medium-term growth, which are al­ready con­strained by struc­tural im­ped­i­ment, could be ad­versely af­fected if Brexit were to lead to in­creased risk aver­sion.

“Coun­tries such as South Africa that rely on private-sec­tor cap­i­tal in­flows to fi­nance large cur­rent ac­count deficits are at greater risk than oth­ers,” Moody’s said.

Ratings agen­cies and in­vestors are also un­cer­tain about the di­rec­tion of eco­nomic pol­icy in South Africa af­ter Pres­i­dent Ja­cob Zuma trig­gered a po­lit­i­cal storm by chang­ing fi­nance min­is­ters twice in less than a week in De­cem­ber.

Pre­to­ria dodged down­grades to its in­vest­ment-grade ratings from Moody’s, Fitch and S&P ear­lier this year, but still faces the dan­ger of slid­ing into “junk” by the end of the year if the eco­nomic out­look de­te­ri­o­rates.

On Thursday, the In­ter­na­tional Mon­e­tary Fund cut its 2016 growth fore­cast for South Africa to just 0.1 per­cent from the 0.6 per­cent seen in May.

The Trea­sury’s own lat­est fore­cast is more op­ti­mistic at 0.9 per­cent. – Reuters

PIC­TURE: EPA

Pol­ish Prime Min­is­ter Beata Szydlo and Bri­tish Prime Min­is­ter David Cameron at a meet­ing in War­saw, Poland yes­ter­day. They dis­cussed the po­lit­i­cal sit­u­a­tion af­ter the Brexit ref­er­en­dum, rights of Poles in Great Bri­tain and Pol­ish-Bri­tish co-op­er­a­tion in the frame­work of Nato.

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