The rand and bonds are weaker now than their Tuesday close before international ratings agency Moody’s Investors Service of South Africa’s upgraded country ceilings for foreign currency debt and bank deposits to Baa1 from Baa2.
This seems to confirm that South Africa once again was hit by the ratings jinx, although this time it seems to be very mild.
The exception to the ratings jinx rule over the past decade has only been May 2003, when Standard & Poor’s (S&P) upgraded South Africa’s rating to BBB from BBB minus. The ratings jinx only appears to apply to Moody’s and S&P, not other agencies.
The jinx started with S&P’s upgrade on November 20 1995 of South Africa’s foreign currency rating to BB plus.
The rand at that stage was R3,65 per dollar after months of stability, but less than three months later, on February 16 1996, the rand depreciated sharply by 6% in a single day on rumours that President Nelson Mandela had a heart attack. Within days it was trading above R4 per dollar.
On March 6 1998, when S&P re-affirmed South Africa’s rating, there was once again a roughly three-month delay before the rand collapsed at the end of May, when the rand went from R5,1470 to R5,20 per dollar and depreciated to more than R6 per dollar by the end of June and a peak of R6,84 on August 28 1998.
The jinx was more immediate when S&P upgraded South Africa’s rating to an investment-grade BBB minus on February 25 2000.
Within days, the heavens opened and Mozambique was flooded in the worst floods in half a century, while land invasions started in Zimbabwe.
By the time Moody’s upgraded South Africa to Baa2 on November 29 2001, the jinx was visible within hours. After initially rallying to R9,7950 per dollar from the previous day’s worst level of R9,9646, the rand broke above R10 to R10,1925 in late trade after rumours of Enron’s impending bankruptcy broke.
The break above R10 then prompted the setting up of short positions and the rand went to a record worst level of R13,86 per dollar on December 20 2001.
The worst level on Friday was R6,1151 per dollar, compared with Tuesday’s close of R5,9611, while the R153 bond yield touched 8,01% from 7,875% at Tuesday’s close.
Only time will tell whether this initial weakness is lasting, or whether, as in May 2003, the ratings jinx passes South Africa by. — I-Net Bridge