Real Estate Investor Magazine South Africa Real Estate Investor Magazine - April 2017 | Page 56

ECONOMIC INSIGHTS
SA Downgraded
to Here’s Junk
Status?
What Will Happen
BY ANTON VAN TEYLINGEN
S
outh Africa’s sovereign credit rating is on the
brink of being downgraded, with all three major
credit ratings agencies assigning our rating a
negative outlook. In these torrid times, a question
I’m often asked is: What happens if South Africa gets
downgraded? Let’s take a look at the effect a ratings
downgrade would have on South Africa.
In 2016, South Africans far and wide were kept
on the edge of their seats by the constant threat of a
“looming ratings downgrade”. Thanks to the efforts of
Pravin Gordhan and the National Treasury, we escaped
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the fateful event. However, murmurs of a possible
downgrade are starting to surface once again.
What happens if South Africa gets
downgraded to junk?
The first and most visible reaction will be reflected in
currencies and bond yields. Since these are directed
by market sentiment in the short term, they are most
vulnerable. The Rand will weaken considerably. The
extent of the weakness depends largely on whether the
chance of a downgrade has been “priced” in to the rate.
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