The Star Early Edition

Eq­ui­ties and bonds brace for a fur­ther down­grade

- Ka­belo Khu­malo

SOUTH Africa’s eq­ui­ties and bonds are brac­ing for a pos­si­ble fur­ther credit-rat­ing down­grade af­ter the luke­warm Medium-term Bud­get Pol­icy State­ment (MTBPS) and a tu­mul­tuous run-up to the ANC’s na­tional pol­icy con­fer­ence next month.

Pa­trice Ras­sou, the head of eq­ui­ties at San­lam In­vest­ments, said re­turns from South Africa’s eq­ui­ties for the rest of the year would hinge on po­lit­i­cal de­vel­op­ments.

“While the JSE has hit record lev­els, we still see pock­ets of value. But eq­uity mar­kets are likely to brace for a fur­ther po­ten­tial credit down­grade and the out­come of the ANC con­fer­ence.

“The mar­ket re­ac­tion is likely to be bi­nary and hinges on po­lit­i­cal de­vel­op­ments,” Ras­sou pointed out.

South Africa’s stock mar­ket has been bullish in the past month, reach­ing new highs, sup­ported by a weak rand.

Macroe­co­nomics sta­tis­tics web­site Trad­ing Eco­nom­ics said his­tor­i­cally, the South African stock mar­ket reached an all-time high of 59638.21 this month and a record low of 26738.91 in Au­gust 2010.

Rat­ings agency Moody’s is on record as hav­ing al­ready termed the MTBPS as “credit neg­a­tive”, warn­ing that fis­cal pru­dence would give way to rhetoric in the run-up to the 2019 elec­tions.


Last week, S&P Global met the coun­try’s key eco­nomic play­ers, but snubbed the gov­ern­ing ANC. A Moody’s del­e­ga­tion is ex­pected in the coun­try this week.

S&P and Moody’s are both ex­pected to re­view South Africa’s credit rat­ing again later this month.

A down­grade by S&P or Moody’s would push the coun­try’s bonds out of widely used global bond in­dexes that rely on in­vest­ment grades only.

Nolan Wape­naar, an an­a­lyst at An­chor Cap­i­tal, said he ex­pected South Africa’s in­fla­tion to be­gin to trend higher again to­wards the sec­ond half of next year and this would be­gin to weigh on the at­trac­tive­ness of lo­cal bonds.

“As a re­sult, we have marginally in­creased our tar­get yield to­wards 8.65 per­cent. This is also pric­ing in one fur­ther rat­ings down­grade from S&P, while we ex­pect South Africa to re­tain its rat­ing at Moody’s.

“Yields over the last quar­ter ral­lied to­wards 8.35 per­cent, which was slightly stronger than our tar­get yield of 8.45 per­cent. The global macroen­vi­ron­ment has re­mained more for­giv­ing than we had ex­pected,” Wape­naar said.

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