Moody’s Report on SA Warns of Possible ‘Junk’ Status
This month Rating agency Moody’s released a report about SA. This was not a ‘rating’ report but rather a ‘how things are looking’ type update. This follows the agency’s decision to hold off on updating their rating for SA until the dust from the local elections has settled.
The new report warns that a possible downgrade lies ahead which will have a dramatic negative effect on foreign investment. At the moment, the agency has rated SA as having a ‘stable‘ outlook (or future prospects). If however the rating drops or even if it stays the same but gets the added descriptor that there is a ‘negative outlook‘ this indicated to investors that the next rating may be the equivalent of the popular ‘Junk‘ status.
The commonly used term ‘Junk‘ status refers to a rating that says that people should not look to invest as a positive return is unlikely to be realised.
The report does not say that such a negative rating is guaranteed rather that it is one of several possibilities. Moody’s lead sovereign analyst Lucie Villa says that the rating is linked to the country’s political efforts in the months ahead: “We expect that the government will continue to pursue greater control of corruption or ‘state capture’ and reform policy, which will support a gradual recovery in growth,” If they are able to do so then that would have a positive impact on the rating given and the economy over time. This will be one factor considered in their future ratings.