Rating Downgrade Infographic

downgrade-1

  • Following the recent government cabinet reshuffle both standard&poors and Fitch Ratings have downgraded South Africa’s credit rating to sub- investment (junk) grade.
  • This sub-investment grade rating adversely affects South Africa’s borrowing costs.
  • A number of large international institutional investors ( for example American pension funds) are not permitted to invest in sub-investment grade countries which ultimately results in reduced foreign investment in South Africa.

2-1

  • Higher interest rates
  • increased unemployment south African rand depreciation
  • lower growth
  • higher inflation

impact on comp-1

  • Exporters such as resource companies (and import substitutes)likely to benefit from the weaker rand.
  • Importers are likely negatively impacted by stronger foreign currencies
  • Retailers and lenders may be affected by higher customer defaults due to higher interest rates
  • Higher borrowing costs will similarly have a negative effect on domestic banks, insurers and other interest rate sensitive industries

investors respond-1

• Remain calm and stay committed to your investment strategy
• Ensure your investments are adequately diversified
• Do not attempt to time your entry and exit into the market during these periods of heightened volatility

how you are effected-1

• Business confidence across South Africa will likely be depressed
• The global buying power of your rands will reduce
• The cost of international travel and imported luxury goods will increase
• Interest rates will likely increase making the servicing of debt more difficult for the general public

momentum-1

• Momentum Outcome-based Solutions subscribe to the optimal levels of diversification to reduce unnecessary risk
• Each of the Momentum Outcome-based Solutions remain on track to deliver on their respective investment objectives regardless of these recent downgrades
• A robust approach to portfolio construction aims to provide investors with a smoother investment journey and thus affords them with the comfort to remain invested during periods of heightened market volatility
• Momentum’s Outcome-based Solutions blend a number of asset classes including offshore assets

summary-1

• The downgradeding of South Africa’s credit rating to subinvestment grade is a negative development for local investors
• Whilst unfortunate, these downgrades are not unique to South Africa as many other emerging markets are similarly categorised as sub-investment grade
• Investors should remain calm and refrain from making emotional decisions that may compromise their investment strategy
• Speak to your Momentum Financial Planner about Momentum’s leading range of Outcome-based Solutions

 

-Momentum Financial Planning

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