Moody’s sê Cyril Ramaphosa se verkiesing as leier van die ANC is goeie nuus vir die ekonomie, en hy gaan nou eers tot Februarie wag voor hy ’n besluit oor die land se kredietgradering maak.
- South Africa was downgraded to junk by Moody’s in March.
- However, global monetary and fiscal stimulus and a weaker dollar have sparked an emerging market rally.
- Foreign investors are returning to SA’s bond market.
- SA is now paying less to borrow and the rand has rebounded.
It’s as if South Africa’s downgrade to junk never happened.
The country is now paying less to borrow in the
local-currency than at any time in the five years before Moody’s Investors
Service removed its last investment-level rating on March 27. The rand has
rebounded, risk premia have returned to pre-downgrade levels, and foreign
investors are streaming back into the country’s bond market after a record
selloff in the first five months of the year.
That shows how global developments – specifically, the
emerging-market rally sparked by global monetary and fiscal stimulus and a
weaker dollar – matter more than domestic risks. It’s also good news for
President Cyril Ramaphosa, who’s had to increase borrowing as an economic
slump, worsened by the Covid-19 lockdown, curtails tax revenue.
With the loss of the last investment rating and South
Africa’s subsequent expulsion from the FTSE World Government Bond Index out of
the way, the rand’s idiosyncratic risks have diminished and the currency is
once again a “bellwether for global recovery,” according to Societe
Generale SA. That was clear on Thursday, when a sudden risk-off tilt in
globalmarket saw the rand post its biggest one-day decline almost four years.
“Although South Africa’s fiscal position grows
increasingly perilous, fiscal dynamics are likely to be less potent a rand
driver than the path of the global recovery post-pandemic,” Societe
Generale strategists led by Jason Daw wrote in a report. The Paris-based lender
recommends an overweight position in South African sovereign credit.
The South African currency gained 0.6% on Friday to 17.0644
per dollar, paring Thursday’s 3.8% decline.
- The
rand weakened more than 9% in the days following the Moody’s downgrade to
a record 19.35 per dollar on April 6, but has rebounded as much as 13%
since then. - The
cost of insuring South Africa’s debt against default for five years using
credit-default swaps more than doubled in March and April to a record, but
fell back to a three-month low this week. - The
extra premium investors demand to hold the country’s dollar bonds rather
than U.S. Treasuries has narrowed 296 basis points from a record high in
March. - After
selling a record 64 billion rand ($3.8 billion) of South African
government bonds on a net basis in the five months through May, foreign
investors are buyers again. Inflows this month through June 10 stood at
6.9 billion rand, according to JSE Ltd. data. - The
National Treasury has attracted orders for more than twice the
amount on offer at its weekly debt auctions, even after
increasing sales by 34% last month.
Bond yields have room to move lower as inflation slows due
to low oil prices and the pandemic-induced decline in consumer demand,
according to Societe Generale. Bond purchases by the central bank and the
global search for yield should also support South African debt, the strategists
said.
