SA ratings downgrades – turbulent times ahead

The recent recall of the previous finance minister Pravin Gordhan from an investor roadshow in London and subsequent cabinet reshuffle triggered a spike in political risk and downgrades by the major credit rating agencies.

This will have major implications for our economy and asset markets in the years to come. This note briefly sets out the backdrop and events to date, and our views going forward for the rand, sovereign bonds and credit whilst also touching on the impact for the economy and South African consumers in general.

Investment backdrop – past 12 months

It is useful to understand the economic and financial backdrop going into the week of March 27 when Gordhan was recalled from London.

A year prior, global growth rates were at stall speed and concerns over the European banking system and a Chinese hard landing were rising. This had led to a sell-off in global risk assets, and was particularly poor timing for SA assets given the on-going fall-out from ‘Nene-gate’ at end-2015.

As a result, Dollar/Rand peaked at 16.9 in mid-January 2016, at which point the local 10 year benchmark government bond yield was 9.8%.

Download the article : Regiments – Fund Managers Times 2017