Rand, stocks edge higher ahead of Moody’s review

The rand gained on Friday, supported by increased investor appetite for risk, even though traders were cautious before a review of the country’s sovereign rating by Moody’s later this evening.

Stocks strengthened, led by banks and retailers on expectations Moody’s would not downgrade its Baa3 rating on South Africa.

At 1502 GMT, the rand was up 0.96% at R14.47 per dollar, as increased demand for Chinese assets amid signs of progress at US-China trade talks and a pledge by Beijing to liberalise financial markets lifted emerging-market currencies.

Market focus was on the decision by Moody’s, the last of the top three ratings firms to give Pretoria’s debt an investment- grade mark. The other two, S&P and Fitch, have already downgraded it to “junk”.

While markets expectations were for the Moody’s to hold the rating at Baa3, some analysts expected the outlook to be cut.

“We continue to expect the outlook will drop from stable to negative on South Africa’s dual currency long-term sovereign debt Moody’s rating today – if the country review goes ahead,” Investec economist Annabel Bishop said in a note.

“This negative outlook would signal a rating downgrade eighteen months thereafter,” she said.

Some economists, however, said the electricity crisis that saw state utility Eskom impose nationwide rolling blackouts this month, and an overall weak recovery in economic growth, have raised the risk of a full downgrade.

In fixed income, the yield on the benchmark 10-year bond shed 9 basis points to 8.61%.

In stocks, the Top 40 index closed up 0.74% while the broader all-share rose 0.72%.

Banking shares rose 1.68% and general retailers gained 3.4%, with Woolworths jumping more than 5% to R46.48 and Standard Bank 3.3% higher to R185.23.

“We have seen the market looks fairly healthy, and things like the banks and retailers are all looking sharply up because those are the areas affected by a downgrade almost immediately,” said Ryan Woods, market trader at Independent Securities.