Cape Town – According to Gavin Smith the head of the African at financial advisory group deVere Acuma, Friday’s rating downgrade of South Africa is likely to set off more unpredictability.
“Markets loathe uncertainty and they typically respond to it with volatility. It can be expected that there will be market turbulence ahead,” he said
In Smith’s view, foreign investors might reduce their exposure in the country’s market. This will result in a sell-off in the South African equity and the bond market which will result the prices as well as yield being put under pressure.
“The longer-term effects will depend largely on how government reacts to the downgrade and with the ANC leadership conference next month, uncertainty will be at an all-time high,” said Smith.
Smith also went on to say that, “We want to emphasise that investors should not react emotionally to the downgrade, as history has shown – even in situations like this – that a long-term strategy linked to the levels of risk and outcome that investors aim for still remains the best investment strategy.”
Economic Strategist at Novare Actuaries and Consultants, Tumisho Grater also explained that S&P’s downgrade means that the country “will now fall out of the Barclays Global Aggregate Index (BGAI).”
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