Moodys Hold Off Further Downgrade
International rating agency Moody’s has decided to adjust their rating of SA from a negative outlook to a stable one.
The decision follows what they have identified as many recent positive steps in politics and the economy and keeps SA from being totally slated as Junk by all 3 of the top rating agencies. Currently, Fitch & S&P do not share Moody’s slight optimism but it will be interesting to see if that changes in the near future.
Moody’s has left SA at Baa3 (with a stable outlook) which is the worst of the investment grading levels (barely above the “junk” don’t invest level). This means that SA then has a similar rating to other countries such as Indonesia and Romania.
A negative outlook means that in all likelihood a rating will drop the next time they review it, while a stable one looks set to stay the same and the hoped-for positive outlook indicates that in the future it is likely that the rating agency would increase the rating. While circumstances can dramatically change the rating these small indicators (neg/stable/pos) do help investors see where the agency thinks things are likely to go and influence investment.
Recent Political leadership changes, as well as a cleaning of house by the new leadership, have been said to have impressed Moody’s. Added to that is above expected economic performance. While the VAT increase and new fuel levies were not met with much enthusiasm locally it seems that from an income perspective the rating agency sees the practicality of the move and predict it will help government greatly.
Also, a positive factor has been developments around the mining charter where a lot of uncertainty and conflict has been in play recently. Amazingly the moves with regards to reevaluating land expropriation without compensation did not totally frighten the rating agency into immediately junking SA’s rating.
Maintaining the Baa3 rating allows SA to stay within the band allowed within the Citi World Government Bond Index. This is good as dropping out will cost SA an estimated R100 Billion (approx) while staying in keeps that investment in play (for now).
The Rand performed well regaining some of its recent shine as it climbed 2% against the Dollar (making it a 5% climb so far this year).