Newsletter: Foster Wealth June 2016 News | 17 January 2021

Which way is up?

We find ourselves in a period of flux – post Nenegate, post Downgrade announcements. Post Constitutional Court ruling and pre Municipal elections. Will he go or won’t he go?

What does all this mean for your investments?

Many people were predicting a “Downgrade”.

It is important to understand exactly what is meant by a downgrade and, while not underestimating the gravity of a downgrade, to keep the issue in perspective.

There are three big credit rating agencies;

• Moody’s,

• Standard & Poor’s and

• Fitch.

The issue at stake is their rating of South African government bonds. On Saturday, 7 May 2016 Moody’s sprang something of a surprise by announcing that they had retained their rating of South African government bonds at two levels above Junk Status. It had previously been widely anticipated that Moody’s would bring their rating down one level to be in line with Standard & Poor’s and Fitch. On Friday, 3 June 2016, Standard & Poor’s also announced that they were retaining the current rating. This was followed by Fitch announcing on Wednesday, 8 June 2016 that they would be also retaining their current rating.

We are still however in a relatively weak position as all three rating agencies have effectively given notice that unless the economic outlook for our country improves substantially, and economic policy indicates that there is political will to bring about change, they will downgrade our rating. This situation has given rise to the term, “six months to get on the right path”.

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"When the winds of change blow,
some build walls while others build windmills."
- Chinese Proverb