Policy uncertainty should not change your long-term financial goals
Last night, a 5.2 magnitude tremor hit parts of Gauteng, the second in 24 hours. It seems a fitting reflection of the monumental economic and political shifts that have hit South Africa since Thursday last week. First tremor: cabinet reshuffle; second tremor: downgrade to junk status by ratings agency, Standard and Poor’s, from BB+ to BBB-. Moody’s has placed us on review for a downgrade. The rand has fallen 2% since the announcement of the downgrade.
Reasons for the downgrade
According to EWN, S&P’s rationale is as follows:
- The cabinet reshuffle reveals leadership divisions and puts policy continuity at risk
- Poor financial performance of government parastatals places greater strain on government
- Government and ANC divisions inhibit investor and business confidence and action
- Slow economic rate, reflected in the contraction of 0.3% in the last quarter of 2016.
S&P has noted the independence of the Reserve Bank and South Africa’s monetary policy flexibility as positives.
S&P has also commented that the possibility of reversing the outlook to stable exists – dependent on the strengthening of fiscal outcomes and economic growth, and the reduction of political risks.
For all investors, it is a matter of maintaining a prudent approach and level-headed attitude to our financial planning, while we await the outcomes of this pronouncement. During times of uncertainty brought on by this and other downgrades, sticking to your long-term financial plan is critical. If you need further clarity, please don’t hesitate to contact us.