moody's ratings agency

A sign for Moody’s rating agency in front of the company headquarters in New York. Photo: Emmanuel Dunand / AFP

Moody’s downgrade could be a ‘non-event’ amid coronavirus chaos

The once-feared downgrade of SA’s investment-grade credit rating by Moody’s may be a damp squib – if it happens at all.

moody's ratings agency

A sign for Moody’s rating agency in front of the company headquarters in New York. Photo: Emmanuel Dunand / AFP

Since 2018 until after Finance Minister Tito Mboweni’s 2020 Budget Speech on 26 February 2020, financial analysts and media pundits have been speaking of Moody’s Investment Services’ likely downgrade of South Africa’s credit rating to sub-investment grade as a doomsday scenario for the economy. 

The scheduled date of Moody’s announcement — Friday 27 March — is almost upon us. But the question is whether anyone really cares, given that economic “doomsday” has already arrived in the entirely unanticipated form of the coronavirus. 

Right now, even the national economies that not long ago were regarded as the poster boys (or girls) for stability and investor confidence are subsiding into a quagmire of instability and chaos. 

Analysts say Moody’s downgrade already priced in

Added to this is the long-held belief of many local analysts that the markets have already priced in a Moody’s downgrade to sub-investment status, perhaps since as far back as mid-2018. This, if they’re correct, means that markets are already operating as if the downgrade has happened and will not dissolve into a panic when the seemingly inevitable Moody’s decision is announced.

In a recent article analysing the South African bond market, Business Insider notes that “Moody’s may not matter much anymore”.

It quotes Izak Odendaal, investment strategist at Old Mutual Multi-Managers, as saying he does not expect the downgrade will by itself have a big impact, as South African bonds are already very cheap and trade at higher levels than other countries with worse credit ratings.

It’s ironic that everyone was worrying about Moody’s and along comes COVID-19, completely overwhelming any potential impact of a downgrade, Odendaal said.

Perhaps the Moody’s decision will not happen at all?

But could it be that the Moody’s decision won’t happen at all?

Stellenbosch University’s Bureau of Economic Research points out that although the calendar date for the announcement is 27 March, the ratings agency is not obliged to make any declaration.

“Given current circumstances, they may skip the decision. Some are making a moral argument about this. For example, ‘how could they’ downgrade South Africa in these conditions,” the bureau said.

“However, the cold hard facts of COVID-19 are that public debt stabilisation over the medium term in SA will be nigh impossible.”

Downgrade will be non-event due to COVID-19 carnage

“We still think the decision is 50/50. Even if they downgrade, it may be a non-event as COVID-19 overshadows all else. Therefore, the additional domestic market sell-off on top of the carnage already experienced will hopefully be limited.”

In an article published in November 2019, Quartz Africa noted that “for all the hand-wringing, South Africans themselves stand to see little change in their daily lives from a downgrade by Moody’s, according to economists”.

The publication quoted Johann Els, chief economist at Old Mutual Investment Group, as saying:

“Bottom line is I don’t think there will be a huge impact on ordinary South Africans. The actual downgrade itself isn’t a big deal. To a very large extent it’s been priced into the markets.”