Moody’s next move: What’s next for SA; Shoprite, Dischem, Multichoice, wine markets

By Jackie Cameron

Most analysts following South Africa expect it to lose its final investment-grade rating. But they disagree over when that might happen and what the consequences would be, says Bloomberg. Here’s what might be next for SA, reports the news agency.

  • Bank of America expects a rating downgrade soon after February’s budget review, doubting President Cyril Ramaphosa’s administration will manage to address concerns about a widening fiscal gap or debt-laden Eskom. Its analysts say markets have priced this in and outflows may only reach $1.5bn, especially if China and the US continue to buoy emerging markets.
  • Citigroup says a downgrade around March is possible if South Africa fails to come up with a “credible debt-stabilisation strategy,” which will involve tough negotiations between the government and unions about reining in spending, according to Gina Schoeman, an economist at the Wall Street bank.
  • Investec’s Annabel Bishop, the bank’s Johannesburg-based chief economist, said a negative outlook, rather than a ratings watch, means Moody’s will probably give South Africa as long as 18 months to improve its finances. The government’s 10-year local-currency yields may rise to about 10% if there’s a downgrade, but they probably won’t climb as much as those in Brazil and Turkey did when they were cut to junk, she said.
  • Rand Merchant Bank says a downgrade by March is now “quite possible” and the rand would probably drop to 16 per dollar, 8% weaker than its current rate and a level not reached since early 2016.
  • Standard Chartered is more upbeat. It does not see a downgrade as early as March as being at all likely at all. Razia Khan, the bank’s London-based chief economist for Africa and the Middle East, says the negative outlook from Moody’s “provides the authorities with exactly the political cover they might need to take a firm stance on reforms,” and a pickup in growth next year may mean a cut’s avoided altogether, she said.

Shoprite’s lead independent director, Shirley Zinn, resigned abruptly, two days after Christo Wiese’s almost 30-year stint as chairman was extended despite a majority of investors voting against his reappointment to the board, says Bloomberg. Africa’s biggest supermarket chain is now down to five non-executive directors and the company gave no reasons in a statement on Wednesday for Zinn’s departure. She also declined to comment on her decision to leave when contacted by phone.

Dischem saw its share price perk up, even though the company reported a 39% drop in interim profit on Thursday. Reuters says Dischem was hurt by strike-related costs and lower demand from suppliers.

Africa’s biggest pay-TV group MultiChoice, spun off from Naspers, said on Thursday it expects its core headline earnings per share for the first half of the year to be between 20% and 25% higher than during the same period last year, according to Reuters.

China, the world’s second-largest wine market, is ramping up efforts to produce its own high quality wine. China is among the top 10 export markets for South African winemakers, but exports to China have been falling in value. Bloomberg reports that, despite its reputation for weak and bland wines, Chinese bottles still make up the bulk of what’s consumed in the country. But production has seen a noticeable decline in recent years, with domestic wine consumption expected to slump to 71.2 million cases in 2021 from 105.4 million cases in 2016, according to IWSR. Demand is being hit as the economy slows and drinkers gravitate toward more familiar liquor, such as the fiery sorghum-based baijiu – China’s national drink. Richard Hemming, a Singapore-based Master of Wine, believes the first boom in Chinese wine consumption has passed.