Rand Slides as Moody’s Europe Rating Reductions Hurts Stocks, Commodities
The rand weakened as stocks and metal prices fell after Moody’s Investors Service lowered debt ratings of six European countries, prompting investors to sell riskier assets.
South Africa’s currency depreciated as much as 0.9 percent before paring its decline to 0.6 percent at 7.7303 as of 3:15 p.m. in Johannesburg.
The U.K. and France may be stripped of their top Aaa ratings, Moody’s said as it downgraded the debt of countries including Italy, Spain and Portugal on concern economic weakness may threaten austerity programs and reforms. The prices of metals including copper, nickel and platinum declined, and South Africa’s benchmark stock index retreated. Raw materials account for 64 percent of South Africa’s exports, according to government data for 2011.
“Risky assets appear to be under some pressure, after another round of sovereign rating downgrades in Europe,” Benoit Anne, the London-based head of emerging-markets strategy at Societe Generale SA, said in an e-mailed note. “This, together with the fear of further headline risks, seems to be creating a negative market backdrop for risk.”
Spain was downgraded to A3 from A1, Italy was cut to A3 from A2, and Portugal was reduced to Ba3 from Ba2, all with negative outlooks, Moody’s said. It also lowered Slovakia, Slovenia and Malta’s ratings.
The euro, the currency in which 22 percent of South Africa’s exports are paid, weakened for a third day versus the dollar. Regional finance chiefs convene in Brussels tomorrow to decide whether to ratify a 130 billion-euro ($171 billion) bailout for Greece.
“The apparent optimism which emerged after the Greek parliament voted through the austerity package yesterday morning is starting to look like a distant memory,” Brigid Taylor, head of institutional flow sales at Nedbank Group Ltd., said in e- mailed comments. “Players were seemingly wary of getting exposed one way or the other since the euro group meeting will be held on Wednesday.”
South Africa’s 13.5 percent bonds due 2015 declined, driving the yield two basis points, or 0.02 percentage point, higher to 6.605 percent.
To contact the editor responsible for this story: Gavin Serkin at firstname.lastname@example.org