Business Maverick

Moody’s Hands S. Africa’s Ramaphosa Lifeline as Markets Rally

By Bloomberg 2 April 2019

It was case of speaking softly and carrying a big stick. Moody’s Investors Service’s brief comment on South Africa’s credit rating sparked the rand’s strongest rally in five months on Monday and drove government bond yields to the lowest since May.

 

The rally has bought President Cyril Ramaphosa more time to convince investors he has the ability to introduce reforms that would stimulate the economy, consolidate government spending and reduce corruption in Africa’s most industrialized economy.

The rating company on Friday deferred a scheduled review of South Africa’s creditworthiness, saying only that the ratings weren’t updated and that the next assessment is set for Nov. 1. That meant the country will retain its only remaining investment-grade rating until after general elections on May 8, which could determine the direction of government policy as Ramaphosa battles populist factions within his party.

“The elections are particularly important as they are expected to open a season of sweeping reforms, many of which, however, are unlikely to be announced before the vote,” Cristian Maggio, the London-based head of emerging-market strategy at TD Securities, said in a note to clients. “Moreover, the depth of such reforms is likely to be a function of the electoral outcome, with a stronger victory assuring a higher chance that important announcements are made shortly after the vote.”

A downgrade by Moody’s could have seen South Africa booted out of investment-grade bond indexes including Citigroup Inc.’s World Government Bond Index, which would have sparked forced selling of a much as $1 billion of the debt, according to Nomura International Plc. Instead, South Africa may now ride a wave of improving investor sentiment by tapping into the Eurobond market for the first time in nearly a year.

Appetite for African debt sales is thriving amid a dovish tilt from the world’s largest central banks, with investors placing orders for more than six times the amount on offer in Ghana’s recent deal. South Africa last issued Eurobonds in May, when it sold $2 billion of notes maturing in 2030 and 2048.

“There would be a good deal of interest” in a South African sale, said Richard Segal, a senior emerging-markets analyst in London at Manulife Asset Management. “The Moody’s decision not to downgrade and recent strength in the U.S. and European government bond markets have only increased this hypothetical interest. We do expect a downgrade next time, but the government has a lot of breathing space in the meantime.”

Sovereign Spread

Yields on the country’s 2028 dollar bonds dropped nine basis points on Monday to 5.1 percent, the lowest in a year and compressing the spread over comparable U.S. Treasuries to 301 basis points. The National Treasury said in February it would tap international markets for as as much as $2 billion should conditions be favorable.

The rand gained 2.4 percent to 14.1601 per dollar by 4:55 p.m. in Johannesburg. Yields on benchmark 2026 rand bonds fell 13 basis points to 8.47 percent, the lowest since May. Returns on the country’s 2028 dollar securities dropped nine basis points to 5.1 percent.

An index of South African bank stocks gained 3.7 percent, the most in five months, as the stronger rand and bonds reduced borrowing costs. Standard Bank Group Ltd., the country’s biggest lender, climbed 4.5 percent. Among other financial shares, insurance giant Sanlam Ltd. advanced 4.1 percent, while Coronation Fund Managers Ltd. rose 7.3 percent. The benchmark index was 1.3 percent higher.

Gallery

In other news...

South Africa is in a very real battle. A political fight where terms such as truth and democracy can seem more of a suggestion as opposed to a necessity.

On one side of the battle are those openly willing to undermine the sovereignty of a democratic society, completely disregarding the weight and power of the oaths declared when they took office. If their mission was to decrease society’s trust in government - mission accomplished.

And on the other side are those who believe in the ethos of a country whose constitution was once declared the most progressive in the world. The hope that truth, justice and accountability in politics, business and society is not simply fairy tale dust sprinkled in great electoral speeches; but rather a cause that needs to be intentionally acted upon every day.

However, it would be an offensive oversight not to acknowledge that right there on the front lines, alongside whistleblowers and civil society, stand the journalists. Armed with only their determination to inform society and defend the truth, caught in the crossfire of shots fired from both sides.

If you believe in supporting the cause and the work of Daily Maverick then take your position on the battleground and sign up to Maverick Insider today.

For whatever amount you choose, you can support Daily Maverick and it only takes a minute.

Support Daily MaverickPayment options


Comments - share your knowledge and experience

Please note you must be a Maverick Insider to comment. Sign up here or if you are already an Insider.

BUSINESS MAVERICK

Old Mutual chair Trevor Manuel breaks his silence about Moyo battle

By Ray Mahlaka

"Everything is flux" ~ Heraclitus