JSE Slips On Credit Downgrade

JSE

VENTURES AFRICA – The JSE All Share Index has slipped 0.21 percent in diverse trade on Friday afternoon.

Gold shares were in the forefront of the upward movers, gaining 1.50 percent by midday, while resource shares slumped 1.27 percent.

A drop in South Africa’s credit rating due to poor growth and uncertainty surrounding policy saw the rand weaken to R8.67 to the US dollar.

Fitch Ratings moved South Africa’s investment-grade rating a notch closer to junk, saying the country’s economic growth and prospects have deteriorated amid social and political tensions.

The credit-rating company downgraded South Africa’s long-term foreign-currency-issuer default rating to triple-B from triple-B-plus, putting it two steps above junk territory. The outlook is stable.

South Africa’s gross domestic product growth has averaged 2.2 percent in the five years through 2012, Fitch said, compared with 4.7 percent for emerging markets as a whole. The weak growth reflects structural rigidities, declining competitiveness, policy uncertainty and labor unrest, the firm said.

The country’s public finances have also weakened, Fitch said, and the firm estimates South Africa’s national government debt will rise to 41 percent of gross domestic product at the end of 2012 from 27 percent at end of 2008.

Social and political tensions have increased as subdued growth, coupled with rising corruption and worsening government effectiveness, have constrained the government’s ability to improve living standards, reduce unemployment and redress historical inequalities, Fitch said.

Still, the country’s investment-grade rating is supported by a generally sound banking system, a deep local bond market that allows South Africa to borrow in its own currency and a floating exchange rate, Fitch said.

South African President Jacob Zuma last month won a vote to keep his top post in the African National Congress, a victory that sidelined his rivals and virtually ensures he will continue to run Africa’s largest economy as president.

Days later, the ANC said it wouldn’t seek to nationalize mines or other industries, but reserved the right to increase state involvement in the economy.

Zuma had said previously that he wouldn’t pursue nationalization, but left-leaning supporters of the ANC have called repeatedly for such policies, creating confusion as to the party’s intentions.

After higher than expected export data from China, US markets closed higher yesterday with the Dow Jones gaining 0.60 percent, the S&P 500 rising 0.76 percent and the Nasdaq climbing 0.51 percent.

The Nikkei rose 1.40 percent at its close this morning after the Japanese government approved economic stimulus measures, while the Shanghai index and Hang Seng fell 1.80 percent and 0.33 percent respectively after signs of rising inflation in China.

European markets had edged up slightly by midday, as the DAX rose 0.16 percent, the CAC40 gained 0.16 percent, and the FTSE 100 inched up 0.02 percent, after news of Japan’s approved stimulus measures worth $116 billion.