Analysts wait for signs of SA’S direction
WHILE Moody’s downgrade of government entities and municipalities yesterday was expected, analysts are now anxiously awaiting Finance Minister Pravin Gordhan’s mediumterm budget policy statement on October 24 and the resolution of economic policy at the African National Congress’s (ANC’s) national conference in December for indications of SA’s future direction.
The two are the most keenly anticipated political events since the uncertainty of the first years of democracy, as doubts grow over the government’s ability to intractable social problems. Yesterday’s action by Moody’s had no effect on the market. It followed the ratings agency’s decision last week to downgrade SA’s sovereign rating by one notch.
It also included a one-notch downgrade for Eskom’s senior unsecured bond rating to Baa3 from Baa2; for Telkom’s global scale issuer rating to Baa3 from Baa2 and single-notch downgrades for a range of municipalities.
These include the metros Johannesburg, Cape Town, Ekhuruleni, Tshwane and Nelson Mandela Bay.
Moody’s said the weakening of
solve the government’s credit profile was the reason behind the downgrades.
It brought Moody’s ratings in line with those of Fitch and Standard & Poor’s, another reason for the lack of response in the market yesterday.
All eyes will now be on the budget policy statement and the outcome of economic policy debates at the ANC’s Mangaung conference, Investec’s fixed-income portfolio manager Malcolm Charles said.
“We think the ratings agencies have done their reviews for now and won’t move again before the medium term budget statement and Mangaung. Economic policy has been up in the air and there has been so much uncertainty. These will be two big events,” Mr Charles said.
“If one looks at the concerns that Moody’s highlights — the unfriendliness of the investment environment, the social issues, and the general direction of policy — the environment (to attract) investors has not been created,” he said.
Wikus Furstenberg, portfolio manager at Futuregrowth Asset Manager, said that while yesterday’s downgrades came as no surprise and had not affected the market, the issues raised were serious.
“At present there are large flows into the bond market, which is a result of the global search for yields. Relative to other opportunities, SA still looks okay. But the focus is on the issues (being raised): this doesn’t look good and is getting worse,” Mr Furstenberg said. As the global economy recovers and opportunities arise, the danger will grow that investors will turn away or sell. The government’s fiscal policy, which most affects the bond market, would therefore be closely watched.
“The budget statement will be crucial. There is some fiscal slippage but spending and revenue for 2012 do look alright. The concern is what may lie beyond, on the horizon,” Mr Furstenberg said.