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Media release: International financial market developments - some implications for South Africa, speech by South African Reserve Bank Deputy Governor Daniel Mminele
Published Date:
2016-07-06
Last Modified Date:
2020-10-08, 08:05 PM
Category:
Media > Media Releases
Volatility in financial markets had become entrenched since the 2008 global financial crisis and the increased financial integration meant that global financial markets had a significant impact on South Africa, South African Reserve Bank Deputy Governor Daniel Mminele said today.Mr Mminele was speaking at the International Mbali Conference hosted by the University of Zululand in Richards Bay, where he addressed the subject of international financial market developments and implications for South Africa. “This integration means that when one major market sneezes, the rest of the globe’s market catch a cold,” he said.Given recent events he also touched on possible implications of Brexit. Mr. Mminele said that while direct trade linkages were relatively small, financial linkages were far larger relative to the size of the South African economy. For example, the value of South African assets owned by UK corporates and investment funds amounted to 46.5 per cent of South Africa’s gross domestic product (GDP) at the end of 2014. In turn, South African investors owned UK assets amounting to 33.2 per cent of South Africa’s GDP.Apart from spillover effects via the Eurozone and a general slowdown in global growth, it is these financial linkages that could render South Africa more vulnerable through the potential sale of South African assets by United Kingdom corporates and investment funds in the aftermath of the UK voter’s decision to withdraw from the European Union.“South Africa could very well be impacted by the realisation of tail risks emanating from asset liquidation by UK corporates and investment funds. However, the storm is likely to calm as time progresses and the respective parties provide clarity on the process,” Mr Mminele said.Mr. Mminele also addressed, among other issues, South Africa’s sovereign credit rating. He said, while foreign currency ratings were extensively covered in the media, the distinction between foreign and local currency ratings are rarely discussed.“While foreign currency ratings commonly make headlines, in many ways the local currency rating is of greater significance for South Africa,” he said. “South Africa does not have a significant burden of debt that is denominated in foreign currency.”At the time of tabling the 2016/17 budget in parliament, National Treasury estimated public debt in foreign currency at 11.3 per cent of overall government debt for the 2015/16 financial year. This figure is expected to stabilize around 10 per cent over the next few years.“So whilst a downgrade in our foreign currency rating would increase the cost of our access to foreign currency debt markets and would be seen as a serious setback, the impact of losing the local currency investment grade would be far worse.“This, in effect will make our domestic currency denominated debt less attractive and hence more expensive. Fortunately, South Africa’s local currency rating is at least two notches above investment grade by each of the major ratings agencies,” Mr Mminele said.Pleaseclick hereto access the full speech. Note to editorsFor a fuller discussion on sovereign credit ratings and the key factors that influence these ratingsclick herefor a speech delivered by Mr. Leon Myburgh, Head of the Financial Markets Department at the SARB on 7 June 2016.Contact:media@resbank.co.za+27 12 313 4209