March 26, 2018 / 7:38 AM / 10 months ago

UPDATE 3-South African rand at one-month peak after Moody's rating reprieve

* Moody’s affirms S.Africa’s investment-grade rating

* Credit rating outlook revised to stable from negative

* Government bonds firm, banking shares rise

* Murray & Roberts surges on ATON buyout plan (Updates prices, adds trader comment on stocks)

By Olivia Kumwenda-Mtambo and Patricia Aruo

JOHANNESBURG, March 26 (Reuters) - South Africa’s rand raced to a one-month high against the dollar on Monday and government bonds firmed as investors cheered Moody’s decision to change the country’s credit outlook to stable from negative.

Moody’s late on Friday affirmed South Africa’s debt at “Baa3”, the lowest rung of investment grade, saying the previous weakening of national institutions was gradually reversing and this was supporting an economic recovery.

While the decision to affirm the rating was widely anticipated by market participants, the unexpected move to revise the outlook lifted sentiment.

At 1513 GMT, the rand traded at 11.6775 per dollar, 0.62 percent firmer than its New York close on Friday at 11.7500.

In fixed income, the yield on the benchmark 2026 paper was down 7.5 basis points to 7.915 percent, reflecting the strongest bond prices since early 2015.

“What surprised markets on Friday is that Moody’s upgraded the rating outlook from negative to stable - which means that a downgrade is no longer likely even in the medium-term, unless of course new developments overtake us,” Commerzbank analysts said in a note.

On the bourse, banks bucked the weaker trend on the broader market, rising 0.19 percent. The All-share index fell 0.3 percent to 56,238 points while the Top-40 index was down 0.38 percent to 49,566 points.

Banks, considered the barometer of both political and economic sentiment, have largely borne the brunt of previous credit ratings downgrades given their substantial exposure to sovereign debt and various state-owned companies.

Construction company Murray & Roberts was the most notable mover on the equity market, climbing around 45.5 percent to 14.03 rand at the close after Germany’s ATON said it planned to make a buyout offer.

“In the scheme of things, that is positive for Murray & Roberts. Like many others in the construction space they have been under pressure because the infrastructure spending in the country has dwindled. It should help them get back on track,” said Ryan Woods, a trader at Independent Securities.

Naspers remained under pressure, down 0.6 percent to 3,130 rand following the sale of a 2 percent stake in Tencent last week.

“Naspers is still under pressure because no one really knows what they are going to do with that money and there is a little bit of concern about what their strategy going forward will be,” Woods said.


A downgrade to a “junk” rating by Moody’s would have seen South Africa removed from Citi’s World Government Bond Index (WGBI) and could have triggered up to 100 billion rand ($8.58 billion) in asset sales by foreign investors.

Moody’s is the only major ratings agency that rates South African debt as investment grade. S&P Global Ratings and Fitch downgraded the sovereign to “junk” status last year following a deterioration in the country’s economic outlook.

South Africa has this year seen a return of sorely needed investor confidence since President Cyril Ramaphosa replaced scandal-plagued Jacob Zuma, who resigned in mid-February on the orders of the ruling African National Congress party.

Moody’s decision was likely to influence decision-making at the three-day meeting of the South African Reserve Bank (SARB) Monetary Policy Committee, which starts on Monday, Nedbank analysts said.

The interest rate decision will be announced on Wednesday.

A Reuters poll conducted before Moody’s review showed markets expect the central bank to cut its repo rate by 25 basis points to 6.50 percent as consumer price inflation eases.

Forward rate agreements were on Monday pricing in a 94 percent chance of a 25 basis points rate cut in the benchmark lending rate, up from an 80 percent chance two weeks ago.

“We expect SARB to shift to an easing bias this year,” UBS analysts said. “Still, nominal and real yields should remain attractive compared to peers and support the return outlook for the rand.”

$1 = 11.6487 rand Additional reporting by Nomvelo Chalumbira and Tiisetso Motsoeneng Editing by Mark Heinrich

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