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Investors Flee South African Rand Ahead of Rating Review -- Update

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10/31/2019 | 03:55pm EST

By Ira Iosebashvili

A dire growth outlook has investors fleeing the South African rand a day ahead of a review from ratings firm Moody's Investors Service.

The rand is down around 3% in the past two days after the government slashed forecasts for growth and ramped up government debt projections.

The country is gearing up to spend an extra $4.63 billion by 2022 to save its troubled power utility, Eskom.

Moody's, the last of the credit-rating firms to maintain an investment-grade rating on the country's debt, is set to release a review of South Africa's credit rating Friday.

A downgrade to junk status -- or signs that the ratings firm is gearing up to do so in coming months -- could force some indexes and mutual funds to exclude the country's sovereign debt, pushing some investors to sell its bonds.

Some benchmarks, like the World Government Bond Index, don't hold bonds that are rated below investment grade.

A downgrade may not come immediately. Some analysts expect Moody's to shift its outlook for the country's debt to "negative," a move that could set the stage for a downgrade next year.

"We think they will be eventually downgraded and it should come in fairly short order," said Jim Barrineau, co-head of emerging-market debt at Schroders.

Overall, worries over obstacles to a trade agreement between China and the U.S. weighed on the dollar and boosted haven currencies like the Japanese yen.

The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, fell 0.2% to 90.39 late Thursday. The dollar was down 0.8% against the yen. The yield on the 10-year Treasury note, which falls as prices rise, fell to 1.694% from 1.801% Wednesday.

Write to Ira Iosebashvili at ira.iosebashvili@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / JAPANESE YEN (AUD/JPY) 0.07% 75.23 Delayed Quote.-1.97%
BRITISH POUND / JAPANESE YEN (GBP/JPY) 0.06% 145.8 Delayed Quote.5.38%
CANADIAN DOLLAR / JAPANESE YEN (CAD/JPY) -0.05% 83.068 Delayed Quote.3.50%
EURO / JAPANESE YEN (EUR/JPY) 0.00% 121.51 Delayed Quote.-2.73%
EURO / SOUTH AFRICAN RAND (EUR/ZAR) 0.12% 16.1278 Delayed Quote.-1.92%
EURO / US DOLLAR (EUR/USD) 0.02% 1.11223 Delayed Quote.-2.47%
JAPANESE YEN / SWISS FRANC (JPY/CHF) 0.12% 0.8987 Delayed Quote.0.66%
NEW ZEALAND DOLLAR / JAPANESE YEN (NZD/JPY) 0.07% 72.2 Delayed Quote.-1.76%
SCHRODERS PLC 2.88% 3360 Delayed Quote.37.54%
US DOLLAR / JAPANESE YEN (USD/JPY) 0.02% 109.41 Delayed Quote.-0.20%
US DOLLAR / SOUTH AFRICAN RAND (USD/ZAR) 0.21% 14.5098 Delayed Quote.0.54%
US DOLLAR INDEX -0.23% 97.18 End-of-day quote.0.51%
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