South Africa’s Economic and Potential Downgrade Woes (Bloomberg)
As South Africa awaits a possible S&P Global Rating downgrade to junk status (a move that would move the company’s assessment of South Africa’s creditworthiness to below investment grade for the first time in 16 years and put the country in line with Turkey and Indonesia), Nicholas Gartside, international CEO of fixed income at JP Morgan Asset Management, was on Bloomberg to discuss the economic outlook for the country.
Gartside had this to say about South Africa:
When we look at South Africa, a downgrade would not surprise the market. When you look at the economic fundamentals, South Africa has a twin deficit. It has a current account deficit, it has a budget deficit and of course growth is pretty sluggish. So a downgrade at some point is frankly factored into market and wouldn’t alarm the market.
He thinks things are pretty relative at the moment as most emerging markets are suffering from low growth as a challenge. On the other hand, South Africa also suffers from a weak Rand which is sucking in inflation and can, over time, become a “tricky cocktail.” Ultimately, he says that South Africa, like many other emerging markets, needs to do reform and that’s usually the hardest.
In another Bloomberg segment, it was noted that South Africa is facing its slowest growth since the 2009 financial crisis that’s being exacerbated by a drought, low commodity prices and slowing global growth. UBS Global Macro Strategist Ramin Nakisa also said he suspects the ratings agency will wait until the end of the year as there are upcoming municipal elections (“that will be key”) among external factors such as slow growth in China, a strong dollar and softening housing starts.
- S&P South Africa Downgrade Excerpt (Rand Daily Mail)
- Downgraded Countries Were Top Emerging Market Performers in 2016 (IOL)
- South Africa Sees Fresh Start for Economy, With the Same Challenges (NYT)
- YPO CEO Survey: Africa CEO Confidence at 5-year Low (YPO)
- South Africa Stocks “Expensive Within Emerging Markets” (Moneyweb.co.za)
- Moody’s Downgrades South Africa Banks, Insurance Companies and Others (Moody’s)
- Naspers’ Tencent Stake Drives the MSCI South Africa Index’s Returns (KraneShares)
- Fitch Leaves South Africa Hanging Over the Precipice (Business Report)
- Psigma’s Gregory: Avoid Economies With Current Account Deficits (FE Trustnet)
- South Africa Falls to #56 in the Global Competitiveness Report