South African bond prices and bank stocks suffer after ratings cut

South African government bonds and bank stocks joined the rand in falling on Tuesday morning, after S&P cut the country’s credit rating to junk status and Moody’s warned of another likely downgrade.

S&P blamed president Jacob Zuma for sacking his respected finance minister Pravin Gordhan on Thursday, and said the president’s late-night cabinet reshuffle “put at risk fiscal and growth outcomes”. It downgraded the government’s long-term foreign currency rating to junk status, and its local-currency rating to only one notch above.

Moody’s also warned last night that it is likely to cut the government’s ratings. The ratings agency put the government’s ratings “on review for downgrade”, arguing that the “timing and scope” of Mr Zuma’s reshuffle raised questions over “prospects for ongoing reforms, the underlying strength of South Africa’s institutional framework, and the fragile recovery in the country’s economic and fiscal position”.

Yields on the country’s benchmark 10-year bonds, which rise when prices fall, rose 11.9 basis points (0.119 percentage points) on Tuesday morning, to 9.106 per cent, their highest level since the aftermath of the US election.

The Johannesburg stock exchange banks index was down 3.15 per cent at publication time, to its lowest level since October. The index has fallen 13 per cent since Mr Zuma initially prompted fears of a reshuffle by recalling Mr Gordhan from an investor trip last Monday.

London-listed Old Mutual also sank to the bottom of the FTSE 100, with shares down 2.8 per cent to 193p.