South Africa was on Monday cut to “junk” by analysts at S&P Global, sending the country’s currency tumbling anew, after last week’s abrupt cabinet shake-up by President Jacob Zuma.
S&P cut the country’s sovereign’s rating to “BB+” from “BBB-” and said the outlook remains “negative”. South Africa is rated just one notch above junk at Fitch and two notches above junk at Moody’s.
Should Fitch follow suit and strip South Africa of its investment grade rating, that could potentially have a greater market impact because many pension funds and other large investors are required to sell bonds once two separate agencies rate them as speculative grade.
New York-based S&P said that “the executive changes initiated by President Zuma have put at risk fiscal and growth outcomes”.
Currencies traders reacted to the ratings cut, sending the rand tumbling 1.7 per cent to ZAR13.655. It was down by 7.4 per cent last week.
South Africa is the third of the big emerging market economies (BRICS) to be stripped of its investment grade rating over the past two years. Russia and Brazil were both junked in 2015.