About six months ago, most commentators seemed to be in agreement that a downgrade would in fact be inevitable when the time came for a formal review by S&P (which had been scheduled for early December 2016). Reasons for this consensus view were plentiful and compelling, with the country’s political stability appearing to be tenuous, economic growth being measly (although, crucially, not negative), several State institutions finding themselves in rather perilous condition, etc.
I am no economist, and I certainly know a lot less about the intricacies of country ratings than most of these esteemed commentators. But if there is one thing that I’ve learnt in my investment career, it is that 99% of the time, the market knows better than even the most brilliant analyst. Against this background, I was focusing simply on the rand – in my view, the single indicator which is usually the best barometer for what’s really going on in South Africa, as well as what the world thinks of the country and its prospects.
As readers will no doubt remember, the rand happened to be relatively strong throughout the second half of 2016: in fact, following the much-hyped Nenegate debacle of December 2015, the SA currency more than made back all the losses from that infamous incident. Looking at this from a distance, it therefore seemed pretty obvious to me: in aggregate, the market seemed to ‘know’ that a downgrade was in fact not going to happen – how else could one explain such relative currency strength?
Like any participant in financial markets, I’ve often been proven wrong, but for once I got the call right. We now know that S&P decided to “give South Africa a chance” and a downgrade never eventuated in December 2016. Cue celebrations and back-slapping all round; even President Jacob Zuma got in on the act as part of his most recent State of the Nation address, claiming at least some of the credit for this fortuitous outcome.
But December’s good news was not yet cold, when rumours started circulating about the minister of finance (once again) being in the line of Zuma’s fire. On this particular occasion, a lot of the smart money was on former Eskom CEO Brian Molefe being parachuted into Pravin Gordhan’s hot seat, not very long after resigning from his post at the power utility.
