South African Banks Fall to One-Year Low Before Rating Reviews

  • Foreign investors may be negative on banks, fund manager says
  • Prospect of rising interest rates damps attraction of stocks

South African banking stocks fell, extending the longest losing streak since April 2011, as a weaker rand, imminent reviews of the country’s credit ratings and expectations the U.S. Federal Reserve will increase rates in two weeks weighed on sentiment.

The six-member FTSE/JSE Africa Banks Index dropped for an eighth day, retreating 0.7 percent to its lowest level since October last year. Capitec Bank Holdings Ltd., a provider of loans not banked by assets that has rallied 75 percent this year, was the biggest loser among index members Wednesday, retreating 1.7 percent to 595.32 rand. Barclays Africa Group Ltd. fell 0.9 percent, while Standard Bank Group Ltd. and Nedbank Group Ltd. lost 0.9 percent and 0.4 percent respectively. The benchmark has fallen 21 percent from the record high reached April 23.

Local “investors have been reasonably positive on South African banks and have held them in their portfolios, but it may well be that there are foreign investors who’ve taken a negative view,” John Orford, a money manger at Macrosolutions, a unit of the Old Mutual Investment Group, said in an interview in Johannesburg. That may be because of “the rating reviews coming up at the end of the week, the Fed raising rates in December, and the general macro deterioration in South Africa,” he said.

South Africa’s rand, which has declined 19 percent against the dollar this year, climbed 0.8 percent to 14.3263 by 2:47 p.m. in Johannesburg. The economy narrowly avoided recession in the third quarter as it struggles to recover from a slump in commodity prices, electricity shortages and slowing growth in China, the country’s biggest trading partner.

Credit default swaps show the nation’s credit rating might be due for a downgrade. Twelve of 13 analysts surveyed by Bloomberg said Fitch Ratings Ltd. will cut its assessment to BBB-, the lowest investment grade on Dec. 4. On the same day, Standard & Poor’s will probably keep its rating at one level above junk, while some analysts are predicting the company will lower its outlook to negative from stable.

A sharp increase in interest rates in the next year could lead to a higher-than expected rise in banks’ non-performing loans as the strain on consumers’ finances deepens, Orford said.

Even so, banking stocks continue to offer value for some investors, Orford said. “The market’s quite expensive and banks’ dividends yields are reasonably high relative to the market. The price-to-earnings ratios are not particularly elevated and they’re very soundly capitalized.”

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