Goldman Sachs sees potential rally in South Africa assets as markets overlook investment grade return

Goldman Sachs thinks the market is sleeping on South Africa. In a note led by economist Andrew Matheny, the bank argues that South African government bonds, equities, and the rand all carry meaningful upside because investors have yet to price in the country’s improving chances of clawing back an investment-grade sovereign credit rating. The numbers behind Goldman’s call Goldman’s projections are specific and aggressive. The bank sees local-currency government bond yields declining by more than 100 basis points to 7.6%. Five-year credit-default swap spreads, a key measure of how risky the market considers South African debt, are expected to tighten to roughly 100 basis points from around 116. The rand, meanwhile, is projected to appreciate about 9% against the US dollar. The timeline Goldman has in mind is a return to investment-grade status by 2028. That would be driven by shrinking fiscal deficits, a reduction in public debt, GDP growth approaching 2.5% in the medium term, and tangible improvements in South Africa’s electricity and transport infrastructure. How South Africa lost its way, and how it’s finding it again South Africa lost its last investment-grade rating in 2017. Cur...