Rating downgrade hits S.Africa; EM stocks fall

Frankfurt (April 4)  A credit rating downgrade ramped up pressure on South Africa's assets on Tuesday, sending the rand tumbling and bond yields rising as political turmoil in the country exacerbated investors' overall caution towards riskier assets.

South Africa's rand weakened 1 percent against the dollar in its seventh straight session in the red, having lost nearly 12 percent since last Monday when President Jacob Zuma ordered respected Finance Minister Pravin Gordhan back home from a trip abroad in a week that culminated in his sacking.

Gordhan's departure and the rifts in the ANC-led government prompted S&P Global to cut South Africa's sovereign credit to 'junk', handing it the first downgrade since 2000. Moody's said later it was placing South Africa on review for downgrade. "The big question mark is what Fitch does - there is no specific review date for them," said Simon Quijano-Evans, emerging markets strategist at Legal & General Investment Management.

"They are right at the bottom end of the investment grade and Moody's still has two notches to go to junk status - most of the action happens with the second downgrade to 'junk'."

Bonds also came under pressure with the yield in the local benchmark now firmly above 9 percent and eurobond yields edging higher almost across the whole curve. But emerging assets came under pressure more widely amid a general risk off mood with investors awaiting cautiously a first meeting later this week between U.S. President Donald Trump and Chinese President Xi Jinping and growing uncertainty on Trump's ability to deliver on his stimulus pledges.

In Russia, lower oil prices and doubts on whether the central bank would step up currency interventions weighed on the rouble, which weakened 0.9 percent. The Mexican peso nearly matched that fall.

In Ukraine, dollar-denominated bonds gained across most of the curve after the International Monetary Fund's executive board approved another $1 billion loan payment on Monday, bringing total disbursements to about $8.38 billion under the $17.5 billion bailout program. Emerging stocks also fell with MSCI's benchmark index down 0.3 percent on the day, dragged down by falls in South Korea and Taiwan .

Source: Reuters