Dawie Roodt: Junk downgrade should have happened sooner

Johannesburg - Although there has been somewhat of a surprise to South Africa's downgrade to junk status on Monday, economist Dawie Roodt is of the view that it should have happened sooner.

Speaking to eNCA he cited South Africa’s debt levels, the state of state-owned enterprises and economic and political uncertainties as some of the factors contributing to the downgrade.

“The ratings agencies gave us a lot of time, and gave us a second chance,” he said. “Ratings agencies gave us ample time to correct things. We did not make the most of the opportunity and now we are paying the price.”

Roodt also explained that financial markets had already priced in the downgrade, which is why the rand did not depreciate too much. At 8.25pm, the rand was trading at R13.70/$. He also said that the bond markets had not weakened too much.

“The good news is that the financial markets already expected it… It was no surprise.”

Roodt added that it was “not the end of the world”. The rand could appreciate if there is a recovery in political stability, which includes a change in political leadership. He explained that the rand was “hugely undervalued” and it could recover in the next few weeks or months.

“We must understand that we are in a volatile environment… A lot of things can happen in the political environment,” he added.

Responding to a question about how South Africa would fare compared to other countries which have been downgraded, Roodt said that South Africa could recover within the next year or two, provided we have the “right political leadership and policy”.

Despite seeing no need to withdraw investments from the country, he said it would be wise to keep an eye on the markets and have a diversified portfolio.