Here's why Moody's believes South Africa isn't 'junk' - yet
Investors may be forgiven for wondering what’s taking Moody’s Investors Service so long to downgrade South Africa to junk.
Financial markets have been pricing in a downgrade for months, and the two other major rating companies have had South Africa on junk for two years. Yet Moody’s said this week South Africa’s investment rating is probably safe for another 12 to 18 months and President Cyril Ramaphosa’s government needs time to implement economic reforms, including fixing the loss-making power utility Eskom.
Per Hammarlund, chief emerging-markets strategist at SEB AB in Stockholm, said Moody’s places more emphasis on South Africa’s relatively deep domestic financial market, which enables the government to finance its budget deficit, as well relatively low external debt. Those factors have so far staved off a downgrade.
“They have also become convinced that plans to stop the erosion of public finances will be implemented, which is a big or daring assumption to make,” he said.