Analysts offer a mixed bag of potential outcomes, none of them are good, but some are not half bad
Most analysts following SA expect it to lose its final investment-grade rating. But they disagree over when that might happen and what the consequences could be.
Others say investors have already priced in a downgrade and SA assets may even rise in the aftermath, especially if sentiment towards emerging markets stays strong. If Moody’s does downgrade SA, rand bonds will be excluded from the FTSE world government bond indexe , which comprise 14 currencies, including the dollar and yen, and have about $3-trillion tracking them, according to Bank of New York Mellon. SA has a 0.45% weighting in the main index.
SA assets are cheap and “post-downgrade, the market is likely to rise as uncertainty declines”, they said in a note this month.Daniel Tenengauzer, head of markets strategy, is in the bearish camp and forecasts between $8bn and $12bn of outflows if SA exits the WGBI. Its status as the highest-yielding country in the index may not help much to curb the selling, he said. Rand bond rates average 9.2%, about 360 basis points more than those for the second-highest yielding currency, the Mexican peso.
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