Trade War Threats, International growth may slow by 100 bps, says S&P

S&P cuts South Africa local debt to Junk; Moody’s gives warning


S&P Global Ratings cut South Africa’s local-currency debt score to junk on Friday, while Moody’s Investors Service also threatened to slash its ranking to the same level, raising the risk of a selloff from global indexes. S&P lowered the country’s local-currency rating one step to BB+, one level below investment grade, and placed it on a stable outlook. Its assessment on South Africa’s foreign-currency debt, which it already considered speculative, was taken down one notch to BB. Moody’s opted to keep both readings on Baa3, its lowest investment grade, but put them on review for possible downgrade.
The reduction by S&P “reflects our opinion of further deterioration of South Africa’s economic outlook and its public finances,” the company said in a statement. “Economic decisions in recent years have largely focused on the distribution — rather than the growth of — national income. As a consequence, South Africa’s economy has stagnated and external competitiveness has eroded.”
Should Moody’s also downgrade the local-currency rating, rand debt would fall out of gauges including Citigroup Inc.’s World Government Bond Index, and this could spark outflows of as much as 100 billion rand ($7 billion), Citigroup economist Gina Schoeman said ahead of the rating company announcements. A selloff of rand bonds — which comprise about 90 percent of South Africa’s outstanding liabilities — would raise borrowing costs for the nation as it sells more debt to plug a widening budget gap.