SA Bond and FX Strategy 171127 - Nedbank · • The sovereign rating outcomes were as anticipated:...

27 November 2017 |PAGE 1

SA BOND & FX STRATEGYSA Sovereign Rating Outcomes And

Implications

27 November 2017

Jones Gondo

Senior Research Analyst: DCM Credit

Tel: +27 11 294 4484

Email: [email protected]

Neels Heyneke

Senior Strategist

Tel: +27 11 535 4041


[email protected]

mailto:[email protected]


EXECUTIVE SUMMARY

• The sovereign rating outcomes were as anticipated: Fitch (affirmed), S&P (downgraded) and Moody’s (on Review for Downgrade).

• This means South Africa remains in the Citi World Government Bond Index (at least for another three-to-four months) thanks to the Moody’s decision, but will now be excluded from the much smaller Barclays Global Aggregate Bond Index (due to the S&P downgrade).

• The market had largely positioned for this outcome, and so we believe the impact will be muted on bond yields and the Rand. Much of the event risk attention now turned to the ANC Elective Conference.

• S&P downgraded the foreign currency rating to “BB” from “BB+”, making it the lowest rating among the peer agencies. Its decision was motivated by quicker than expected debt accumulation and deteriorated per capita GDP growth and wealth levels. The agency was somewhat unmoved by the potential mitigations to be presented in the February budget and steered clear of connecting any short-term credit prospects to any political outcomes coming out of the ANC Elective Conference in December.

• Our base-case for Moody’s review in March 2018 is that they are likely to lower their ratings to “Ba1” premised on the same fundamental credit concerns around fiscal strength, lacklustre growth and revenue collections, and continued policy uncertainty as politics (in an election year) will probably continue to overshadow policy reforms.

• We highlight ZAR and Bond levels to watch:‒ SA R186 (9.345%) - Only a break above 9.525% would signal a major break higher. If the sell-off fails and break below 9.328%, it will possibly target a move to 9.061%.

‒ USD:ZAR (14.167) - We believe that further weakness is possible to the previous highs at 14.28 or 14.3547, as the markets open on 27 November 2017. A break below 13.8566 would project a move to 13.40.


FITCHFC (Affirmed): BB+/Stable/B

LC (Affirmed): BB+/Stable/B

Country Ceiling (Affirmed): BBB-

Outcome: BB+/Stable/B ratings affirmed. The agency is comfortable with the rating level and will likely only respond on an event-driven basis with outlook

changes. A rating change from a stable outlook will require a significant surprise event. All concerns about contingent liabilities on the fiscus and general policy

uncertainty on growth are fully priced into the ratings.

MOODY’S

FC (Under Review): Baa3/Watch Neg./P-3

LC (Under Review): Baa3/Watch Neg./P-3

FC Country Ceiling (Unchanged): A3/P-2

LC Country Ceiling (Unchanged): A2

FC Bank Deposit Country Ceiling (Unchanged): Baa3/P-3

Outcome: Baa3/P-3 ratings placed on Watch for Possible Downgrade. Moody’s will act on the outcome of the February budget and assess policy certainty and

business/investor confidence following the ANC elective conference, but could act on an event-driven basis ,if required, over the next 90-120 days.

S&P

FC (Downgraded): BB+/Neg./B BB/Stable/B

LC (Downgraded): BBB-/Neg./A-3 BB+/Stable/B

Country Ceiling (Downgraded): BBB BBB-

South Africa National Scale (Downgraded): zaAAA zaAA+

Outcome: BB+ foreign currency rating lowered by one notch to BB.

BBB- local currency rating lowered by one notch to speculative grade BB+.

The zaAAA South Africa National Scale was lowered by one notch to zaAA+ implying that there will be no re-mapping exercise which would see BB+ (LC) map to zaAAA. As such, only entities that can pierce the sovereign ceiling on the local currency global scale will qualify for zaAAA; otherwise zaAA+ will be the highest

achievable rating in line with the sovereign.

The agency’s rating action anchors the ratings firmly in the “BB” range, comparable to Turkey and Brazil. Similar to Fitch, the agency is comfortable with the rating level and will likely only respond on an event-driven basis with outlook changes. A rating change from a stable outlook will require a significant surprise

event. All concerns about contingent liabilities on the fiscus and general policy uncertainty on growth are fully priced into the ratings.

S&P most conservative on the hard currency rating; which is now anchored at “BB”, where it started in 1994

SOUTH AFRICA SOVEREIGN RATING

Current (FC): BB/Stable/B

Initial Rating: BB/Stable/-(3-Oct-1994)

Next Rating Review Date(Expected by 24 May 2018)

Current (FC): BB+/Stable/B

Initial Rating: BB/--/-(22-Sept-1994)

Next Rating Review Date(Expected by 23 May 2018)

Current (FC): Baa3/Watch Neg./P-3

Initial Rating: Baa3/--/-(3-oct-1994)

Next Rating Review Date(**Expected by March 2018**)

Baa2/BBB

Baa1/BBB+

A3/AA-

A2/AA

Baa3/BBB-

Ba1/BB+

Ba2/BB

Ba3/BB-

B1/B+

South Africa’s Long-Term (FC) Rating History (1994-2017)

Source: Fitch, Moody’s, S&P

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

S&P Moody's Fitch


S&P• In our view, S&P’s rating decision made a bold statement. Their foreign currency rating is now the lowest

at “BB” compared to Fitch at “BB+” and Moody’s at “Baa3”. The rating action firmly anchors South Africa in speculative grade for the next 2-3 years at least.

• In this round of rating reviews, the local currency rating was the most important due to index exclusion risk. The fact that the foreign currency was lowered has no further impact, but we speculate that some there could be some concern over covenants in the corporate space (especially state-owned companies, banks and insurers with international exposure) should South Africa’s rating level fall below “BB-”.

• While there is still some uncertainty about South Africa’s future economic policy and structural reform path, following the ANC Elective conference; S&P seems to have taken the window of opportunity to transition the ratings now based on weak growth and a poor fiscal trajectory rather than to speculate on hypothetical political outcomes – they had to look through the “political noise” so –to-speak.

• In our opinion, the stable outlook at this rating level, seems to say that S&P were not convinced about the potential upside scenario and mitigation measures put forward by the Sovereign officials and even if they are surprised on the upside, it is only good for a “positive” outlook or an upgrade, but still in speculative grade. On the other hand, it also says that most of the downside risks they had been worried about over the past few years have now been accounted for within the rating construct and it would take a significant downside surprise to transition the ratings further.

• The rating action means that South Africa will now be excluded from the Barclays Global Aggregate Bond Index, but will remain in the World Government Bond Index (due to Moody’s still rating South Africa in investment grade, at least for the next three-to-four months). The Barclays Index has a quarterly re-balancing and so the outflows from index-trackers will not be immediate , although we speculate that some benchmark funds would have been underweight South Africa in anticipation of a sell-off.

Moody’s• We think that Moody’s decision was relatively tentative. While it is understandable that there is some

significant event risk which could either enhance or lessen South Africa’s future credit prospects; the market is left uncertain as to whether 90-120 days is sufficient time for Sovereign officials to deliver a more robust budgetary framework and whether structural reform can be implemented in a quick and meaningful manner.

• At the same time, had Moody’s followed suit with S&P, not only would index exclusion have been a concern, but also certain structured finance transactions and derivative transactions that require account banks to maintain investment grade ratings on the global scale would need to be unwound and could impact bank profitability and liquidity in a moderately significant manner.

• Looking ahead to 1Q18, we still believe there will be sufficient scope for Moody’s to lower its ratings to “Ba1” because the fundamental credit metrics imply an indicative range of “Baa3-Ba2” in our estimation. In this last review, Moody’s only made marginal revisions to their scorecard statistics; however, their committee conclusions state what we had anticipated:

‒ “On 21 November 2017, a rating committee was called to discuss the rating of Government of South Africa. The main points raised during the discussion were: The issuer's institutional strength/framework, has decreased. The issuer's fiscal or financial strength, including its debt profile, has decreased.”

• This implies that South Africa was indeed given the benefit of the doubt and the agency is still invested in the bigger picture that South Africa still has a relatively large and diversified economy, deep financial markets, well-capitalized banks and a well-developed macroeconomic framework and the constitution and rule of law in the country underpin its institutional strength.

• Triggers for a downgrade will be:

‒ Any further undue political encroachments at the National Treasury or Reserve Bank, that undermine their view of institutional integrity and independence as well as a lack of progress on structural reforms will result in a downgrade through the institutional score.

‒ If funding gaps persist and the country’s growth and debt trajectory do not improve, or remain consistent with a Baa3 rating, over the next two years (as forecasted following the February budget) then the fiscal stance will be deemed unsustainable, and could lead to a downgrade.

• We do not think Moody’s will split its foreign and local currency ratings. They do not see the notching as a benefit or uplift, but more as a penalty to reflect capital immobility or constrained external liquidity for the sovereign; and these are not distinct concerns for South Africa.

S&P’s rating outcome was very decisive while Moody’s was tentative in our opinion

DECISIVE VERSUS TENTATIVE


SA 5y USD CDS vs 5y Benchmark Sovereign and Swap Curves Curve Steepness (10v2) and (30v10)

$-RAND Spot R186

We expect steepness at the front-end of the curve to remain. We think the market hedged long US$ in anticipation of a more pronounced rand depreciation. Any initial yield uptick in SAGBs due to the rating actions is likely to be faded. The main event risk remains the ANC Elective Conference.

CURVES – ANC CONFERENCE BECOMES THE NEXT EVENT RISK

020406080

100120140160180200bps

10v2 30v10

Source: Bloomberg, Nedbank CIB


Weak per capita GDP, low external competitiveness and poor economic growth prospects have fiscal roots. Economic decisions have been focused on the distribution rather than the growth of national income.

S&P RATING OUTCOME – SCORECARD OVERVIEW

Institutional Assessment

Economic Assessment

External Assessment

Fiscal Flexibility &

Performance

Monetary Assessment

Institutional & Economic Profile

Weak (4.5)

Flexibility & Performance Profile

Intermediate (3.7) (Average fiscal initial score is “4.5” excl. contingent liabilities. The average of all other factors is 3.75) Therefore the fiscal score is 0.75 pts weaker than the average of all other factors.)

Neutral (3.0) Weakness (6.0) Neutral (4.0) Strength (2.0)Weakness (5.0)

Fiscal Debt Burden

Weakness (4.0) +1 for contingent liabilities

Source: Nedbank CIB, S&P

Effectiveness, stability & predictability of policymaking, political institutions & civil society

Initial Assessment: “4”

Transparency & accountability of institutions, data & processes

Adjustment Score: “2”

GDP per capita thresholds (in US$ terms)


We think this score was revised from “4” to “5” to reflect poor GDP per capita income levels which breached thresholds.

Economic growth prospects.

Negative Adjustment: “+1”

GDP per capita trend growth is contracting and is below peers and guideline thresholds of at least 1%.

Economic diversity & volatility

Narrow net external debt (assets)/ CAR (%): 1%-50% range.

Gross external financing needs/ (CAR + Usable Reserves): 101%-150% range.


Trend & funding composition of the balance of payments

Negative Adjustment: “+1”

External position improved but weak growth and imports explains this. Concern remains over vulnerability to foreign investor sentiment, FX fluctuations and developed market interest rates.

Fiscal Flexibility & Performance: Initial Assessment: “5”

Change in general government debt/GDP: Avg. growth of 5% of GDP/year over 2017-2020

We think this score was revised from “4” to “5” to reflect quicker than expected debt accumulation resulting in a net debt/GDP level of 53% by 2021.

Fiscal Debt Burden: Initial Assessment: “4”

Cost of debt: [Government interest expense/Government revenue(%)]: 11%-15% range

Debt level: [Gross government debt/GDP(%)]: 30%-60% range

Contingent liabilities: Negative Adjustment: “+1”

Contingent liabilities combine a Banking Industry Country Risk Assessment (BICRA) of “5” or possibly “6” ,given the changes in the Economic Assessment, with Banks’ assets/GDP in the 50%-100% range. Resulting in a “Limited” initial assessment. This is revised to “moderate” owing to weak SOC balance sheets. The total public sector debt/GDP is estimated at 71% including SOC contingent liabilities which is beyond the initial threshold range of 30%-60% assessed in the Fiscal Debt Burden Assessment.

Non-resident government debt holdings: This increased to 42% from 37% a year ago. This risk is factored into the external score, but would be relevant to the debt structure if non-residents consistently held > 60% of government debt or if 40% or more of government debt was denominated in foreign currency.

Debt service volatility

Banking sector exposure to government debt

Exchange rate regime

Monetary policy credibility, effectiveness and CPI trends

Transmission mechanisms weakening

Central bank restrictions

Dollarization > 50%

Determining factors

“Structural Features”

Adjustment factors

“Qualitative Overlays”

Initial Assessment Average: 4.5Overall Average:5.0 (incl. contingent liabilities adjustment)


•

The differential between FC and LC was retained, but this nuance no-longer matters since all ratings are speculative grade

S&P RATING OUTCOME – FC VS LC

*No longer applies to South Africa. The sovereign is no-longer considered to have an “actively-traded”currency. This is defined as a currency that is bought or sold in more than 1% of global foreign exchangemarket turnover, according to the Bank for International Settlements (BIS) report “Triennial Central BankSurvey”.By comparison, a reserve currency is defined as one that accounts for more than 3% of the world’s totalallocated foreign currency reserves according to IMF’s report “Currency Composition of Official ForeignExchange Reserves”.

**If S&P had only revised its Fiscal Assessment (our base case assumption) then we believe they would havehad to close the gap to “zero notches”. However, we think it lowered the Economic Assessment alongside theFiscal Assessment. This had the effect of keeping the Fiscal score weaker within one-point than the averageof all other factors. Therefore, South Africa still qualifies for a “1 notch” differential between the foreign andlocal currency global scale ratings.

*

**

Foreign Currency Outcome: BB For international comparability. Methodology iscalibrated for long-term foreign currency rating outcomes. In other words, the grid belowestimates the long-term foreign currency indicative rating.

Local Currency Outcome: BB+ The local currency rating is assessed according to the tablebelow. All conditions must be met without exception. This implies that the local currency rating ismore of a qualitative adjustment from the foreign currency indication. A differential probability ofdefault is therefore generally implied.

Sovereign Indicative Rating Level (bb+ bb)

Foreign-currency sovereign rating (BB+ BB)

Local-currency sovereign rating (BBB- BB+)Source: Nedbank CIB, S&P


Factors underpinning the lowering of S&P’s foreign currency rating

S&P RATING OUTCOME – KEY CREDIT METRICS

4000450050005500600065007000750080008500

US$ ‘000sGDP per capita

S&P GDP per capita (June 2017) S&P GDP per capita (Nov. 2017 adjusted forecast)

If current year estimate falls within

10% of closest threshold, S&P can

lower/raise the initial economic assessment.

An Initial assessment of “4” is in the range

of $5,400 - $15,800 per capita. 10% above

the lower-bound is $5,940, or rounded to

$6000. This limit is reached in 2017F and

breached in 2018F.

0

1

2

3

4

5

6

7

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

% Change in debt/GDP

S&P Change in debt/GDP (Jun. 2017) S&P Change in debt/GDP (Nov. 2017 revised forecast)

The rate of change in government debt

versus GDP is S&P’s key measure for assessing

the underlying fiscal stance.

S&P now estimates the annual change in

general government debt will average just below 5% of GDP per year over 2017-2020.

The intimal assessment for the Fiscal

Performance & Flexibility Assessment

was “4” in the range 3%-5%. We now think

S&P has moved the score to “5” in the 4%-

7% range.

-2

-1

0

1

2

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

%

Real per capita GDP trend growthLong-term average trend growth is 0.1% which is well below 1%-4% range for initial

assessment of "3" or "4" and 1.5%-5.5% for initial assessment of "5" or "6"

Real per capita GDPgrowth (June 2017) Real per capita GDP growth (Nov. 2017 revised forecast and 10-year avg.)

Lower-bound threshold of at least 1% avg. growth over the 10-year economic cycle

Key metrics contributing to a weaker Economic Assessment

Key metrics contributing to a weaker Fiscal Trajectory

Source: Moody’s, National Treasury (NT), Nedbank CIB, S&P

39% 42% 45% 46% 48% 49% 49%14%

15%17%

18%18% 18%

17%

-

1 000 000

2 000 000

3 000 000

4 000 000

5 000 000

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

ZAR Mil. Net debt-to-GDP ratio

GDP (NT) Net loan debt (NT) Contingent Liabilities (NT)

S&P’s Debt Level assessment range is currently 30%-60%.

If contingent liabilities are added, S&P looks

to see if the range shifts to a worse

category (61%-80%). S&P currently

estimates public sector debt/GDP at 71%, with

uncertainty over bail-outs for SOC’s which could worsen public

sector debt/GDP into the 81%-100% range.

Although mitigating reforms could balance

the ratio at current levels.

50%51%

52%53%

21%

22%21% 20%

GDP (S&P) Net debt (S&P) Contingent Liabilities & Other Public Sector Debt (S&P)


Moody’s did not change any underlying factors at this review, deferring the decision for further review to after the February Budget (Fiscal) and ANC Conference (policy direction and reform impetus - Economic Resiliency).

MOODY’S RATING OUTCOME – UNCHANGED SCORECARD

Moody’s sovereign rating model logical framework – All factors were unchanged

Model rating outcome is the mid-point of a three-notch range: Eg. Baa3 is in the range Baa2-Ba1

Economic strength

Moderate (+)

Institutional strength

Moderate (+)

Fiscal strength

Moderate (+)

Susceptibility to event risk

Moderate (-)

Economic resiliencyModerate (+)

Government financial strengthModerate (+)

Government bond rating range(Baa2 – Ba1)

Source: Moody’s, Nedbank CIB,


We do not expect S&P to automatically re-calibrate the mapping table

NO RE-CALIBRATION OF THE S&P “ZA” NATIONAL SCALE MAPPING TABLE

S&PIssuer Issue Foreign Currency Local Currency National ScaleRepublic of South Africa Senior Unsecured BB/Stable/B BB+/Stable/B zaAA+/--/zaA-1+

Republic of South Africa SA Country Ceiling or Transfer & Convertibility Assessment: BBB-/--/-

Republic of South Africa RSA Sukuk No.1 Trust BB/--/-Absa Bank Senior Unsecured zaAA/--/zaA-1+African Bank Senior Unsecured B+/Stable/B B+/Stable/B zaBBB/--/zaA-2Anglo American Plc Senior Unsecured BBB-/Stable/A-3 BBB-/Stable/A-3 zaAAA/--/zaA-1+Anglo American SA Finance Senior Unsecured zaAAA/--/zaA-1+AngloGold Ashanti Senior Secured zaAA/--/zaA-1+AngloGold Ashanti Senior Unsecured BB+/Stable/- BB+/Stable/- zaAA/--/zaA-1+AngloGold Ashanti Subordinated zaAA-/--/zaA-1+Barclays Africa Group Senior Unsecured zaA-/--/zaA-2BNP Paribas (ZAR DMTN) Senior Unsecured zaA/--/zaA-1BNP Paribas Personal Finance South Africa Guaranteed Senior Unsecured zaAA/--/zaA-1+BMW Finance N.V. Senior UnsecuredCapitec Bank Senior Unsecured BB+/Neg/B BB+/Neg/B zaAA/--/zaA-1+Cell C Senior Secured B/(85% Recovery)/-Cell C Senior Unsecured B-/Neg/- B-/Neg/-

Development Bank of Southern Africa (DBSA) Senior Unsecured BB/Stable/B BB+/Stable/B

Eskom Senior Secured B+/--/-Eskom Senior Unsecured B+/Neg/- B+/Neg/- zaBBB/--/zaA-2Exxaro Resources Senior Unsecured zaBBB/--/zaA-2FirstRand Limited Senior Unsecured BB-/Neg/B BB-/Neg/B zaA-/--/zaA-2FirstRand Bank Limited Senior Unsecured BB+/Neg/B BB+/Neg/B zaAA/--/zaA-1+FirstRand Bank Limited Upper Tier II Subordinated BB-/--/- zaA+/--/-FirstRand Bank Limited Lower Tier II Subordinated zaA-/--/-Gold Fields Senior Unsecured BB+/Stable/B BB+/Stable/B zaAA/--/zaA-1+Investec Bank Limited Senior Unsecured BB+/Neg/B BB+/Neg/B zaAA/--/zaA-1+Liberty Group Senior Unsecured zaAAA/--/zaA-1+Liberty Group Tier II Subordinated (non-deferrable) zaAA+/--/-Liberty Group Tier II Subordinated (deferrable) zaAA/--/-Macquarie Securities South Africa Senior Unsecured BBB/--/A-2 BBB/--/A-2 //zaA-1+Mondi Plc Senior Unsecured BBB/Pos/- BBB/Pos/-MTN Group Senior Unsecured BB+/Neg/- BB+/Neg/- zaAA/--/-Naspers Senior Unsecured BBB-/Neg/A-3 BBB-/Neg/A-3Nedbank Limited Senior Unsecured BB+/Neg/B BB+/Neg/B zaAA/--/zaA-1+

Old Mutual Life Assurance Company SA (OMLACSA) Senior Unsecured (IFS) BBB-/Neg/- zaAAA/--/zaA-1+

Old Mutual Life Assurance Company SA (OMLACSA) Tier II Subordinated zaAA/--/-

PPC Senior Unsecured zaBBB/--/zaA-2Rand Water Senior Unsecured BB+/Neg/- BBB-/Neg/- zaAAA/--/-Sanlam Limited Senior Unsecured zaA+/--/-Sanlam Capital Markets Senior Unsecured zaAA/--/zaA-1+Sanlam Life Insurance Co. Senior Unsecured (IFS) zaAAA/--/-Sanlam Life Insurance Co. Tier II Subordinated zaAA/--/-Santam Senior Unsecured (IFS) BBB-/Neg/- zaAAA/--/-Santam Tier II Subordinated zaAA/--/-Santam Structured Insurance Senior Unsecured (IFS) BB+/Neg/- zaAA/--/-Santam Structured Reinsurance Senior Unsecured (IFS) BB+/Neg/-Sappi Limited Senior Unsecured BB/Stable/B BB/Stable/BSasol Senior Unsecured BBB-/Stable/A-3Sibanye Gold Senior Unsecured B+/Pos/- zaBBB+/--/-Super Group Ltd. Senior Unsecured zaAA/--/zaA-1+Telkom SA Senior Unsecured BBB-/Neg/- BBB-/Neg/-Transnet Senior Unsecured/RCF BB+/Neg/- BBB-/Neg/- zaAAA/--/zaA-1+Umgeni Water Senior Unsecured zaAAA/--/zaA-1+

Entities that have been assessed to qualify for ratings above the sovereign

Ratings that are expected to be affected by the Sovereign downgrade and could result in downgrades.

Ratings that were downgraded on 24 November 2017 following the sovereign rating review

• The domestic debt capital market takes National Scale ratings into consideration in credit decisions. • S&P did not re-calibrate the “ZA” National Scale mapping table following the sovereign downgrade.• In our estimation, 14 entities will be affected by the sovereign downgrade because they are either

directly linked to the sovereign or have global scale ratings at the same level as the sovereign and are unlikely to be rated above the sovereign. These include banks, insurers and some large corporates (mining).

• We estimate that five entities will continue to be rated “zaAAA” or have global scale ratings above those assigned to the sovereign.

• We do not yet see any reason prompting S&P to re-calibrate the rating scale, because the impact is moderate and no relativity on the scale has been lost as a result of any scale compression.

Key

Source: Nedbank CIB, S&P,


• Friday’s ratings announcements were in line with what our credit analyst, Jones Gondo, had been expecting. We believe that the announcements will not be a shock to the market.

• Every wave up, post the MTBPS, was shorter than the previous wave (red dotted lines), indicating a loss of bearish momentum. The diverging MACD confirms this.

• Only a break above 9.525% would signal a major break higher.

• If the sell-off fails and break below 9.328%, it will possibly target a move to 9.061%.

R186 (9.345%) HOURLY

Hourly ZAR186= 01:00 PM 2017/08/10 - 11:00 PM 2017/12/06 (GMT)

8.332

9.520.0%

9.23923.6%

9.06538.2%

8.92550.0%

8.78461.8%

8.33100.0%

9.328

9.061

9.525

8.607

8.789

C

MTBPS

BarOHLC, ZAR186=, Bid Yield, 04:00 PM 2017/11/24, 9.345, 9.345, 9.345, 9.345Yield

Auto

8.4

8.5

8.6

8.7

8.8

8.9

9

9.1

9.2

9.3

9.4

9.5

9.345

MACD, ZAR186=, Bid Yield(Last), 12, 26, 9, Exponential, 04:00 PM 2017/11/24, -0.016, -0.017Value

Auto-0.02

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

-0.016-0.017

1416 21 24 2931 04 07 11 13 18 20 22 28 0204 09 11 13 17 19 24 26 30 02 06 08 10 14 16 202224 28 29 30 01 02 05 06August 2017 September 2017 October 2017 November 2017

Source: Reuters


• The $-rand rallied from the support line at 13,8566 as news broke Friday night. We believe that further weakness is possible to the previous highs at 14.28 or 14.3547, as the markets open on 27 November 2017. If the market fails to rally further, we are of the opinion that we can assume that most of the announcements were priced in already (seeing as the market already rallied post the MTBPS).

• A break below 13.8566 would project a move to 13.40.

• The two waves up, since Pravin Gordhanwas recalled, were equal in size. Last week the market also broke below the April 2017 high, indicating that this is not a big bull trend in the $-rand. We do not expect a break above the resistance line at 14.6811.

$-RAND (14.167) HOURLY

Hourly ZAR=D3 07:00 PM 2017/01/12 - 12:00 AM 2018/01/10 (GMT)

13.1956

14.6811

13.8566

13.6499

14.3547

c?

MTBPS

BarOHLC, ZAR=D3, Trade Price, 10:00 PM 2017/11/24, 13.9200, 14.1675, 13.9200, 14.1675, N/A, N/ALog

Auto

12.4

12.6

12.8

13

13.2

13.4

13.6

13.8

14

14.2

14.4

14.6

14.1675

MACD, ZAR=D3, Trade Price(Last), 12, 26, 9, Exponential, 10:00 PM 2017/11/24, 0.0174, 0.0068Value

Auto-0.08

-0.04

0

0.04

0.08

0.12

0.01740.0068

17 24 31 07 14 20 24 03 09 16 23 30 05 11 18 25 02 09 16 23 29 05 12 19 26 30 07 14 21 28 03 10 17 24 30 06 13 20 27 03 10 17 23 30 06 10 17 24 30 06 12 17 22 28 03 09Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17

Source: Reuters


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In addition, the Group may have and may in the future have investment and commercial banking, trust and other relationships with parties other than the companies mentioned in this Report, which parties may have interests with respect to the companies and the securities referred to herein. Members of the Group, in the course of such other relationships, may acquire information about the companies and/or securities mentioned herein or such other parties. Be advised that no member of the Group shall have an obligation to disclose any such information, or the fact that any member of the Group is in possession of such information, to the recipients of this Report. Furthermore, members of the Group may have fiduciary or other relationships whereby such member may exercise voting power over securities of certain companies, which securities may from time to time include securities of the companies referred to herein.

Recipients of this Report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.

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Jones Gondo

Senior Research Analyst: DCM Credit

Tel: +27 11 294 4484


[email protected]

DISCLAIMER

Neels Heyneke

Senior Strategist

Tel: +27 11 535 4041


[email protected]




Information and opinions presented in this Report were obtained or derived from public sources that Nedbank believes are reliable but makes no representations as to their accuracy or completeness. Any opinions, forecasts or estimates herein constitute a judgement as at the date of this Report and should not be relied upon. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or estimates. Past performance should not be taken as an indication or guarantee of future performance and no representation or warranty, express or implied is made regarding future performance.

The price, value of and income from any of the financial instruments mentioned in this Report can fall as well as rise. Certain transactions including those involving futures, options and other derivative instruments can give rise to substantial risk of loss and are not suitable for all investors. Before entering into any transaction, you should independently take advice on and evaluate the risks and potential benefits of the transaction.

Opinions, forecasts and estimates expressed in this Report are subject to change without notice and may differ or be contrary to opinions, forecasts and estimates expressed by other business areas in the Group as a result of using different assumptions and criteria. Furthermore, the Group (including each member's directors, employees, representatives and agents) accepts no responsibility or liability (whether in delict, contract or otherwise) for any loss arising from the use of or reliance placed upon the material presented in this Report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to any member of the Group.

In addition, members of the Group may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this Report. Those reports reflect the different assumptions, views and analytical methods of the research analysts who prepared them and Nedbank is under no obligation to ensure that such other reports are brought to the attention of any recipient of this Report. Members of the Group may be involved in many businesses that relate to companies and financial instruments mentioned in this Report.

Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration. The information contained in this Report may include results of analyses from a quantitative model which represent potential future events that may or may not be realized, and is not a complete analysis of every material fact representing any product, company or financial instrument. Any estimates included herein constitute the judgment of the research analyst as of the date hereof and are subject to change without any notice.

This Report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the Report refers to website material of Nedbank, Nedbank has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to Nedbank’s own website material) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this Report. Accessing such website or following such link through this Report or Nedbank’s website is entirely at your own risk

Directors, officers and/or employees of any member of the Group may at any time, to the extent permitted by law, own or have a position in the financial instruments of any company or related company referred to herein, and may add to or dispose of any such position or act as a principal in any transaction in such financial instruments. Nedbank and/or its Affiliates may make a market in these instruments for its customers and for its own account. Accordingly, Nedbank and/or its Affiliates may have a position in any such instrument at any time. Directors, officers and/or employees of Nedbank and/or its Affiliates may also be directors of companies mentioned in this Report. Nedbank and/or its Affiliates may from time to time provide or solicit investment banking, underwriting or other financial services to, for or from any company referred to herein. The financial instruments referred to may not be suitable for the specific investment objectives, financial situation or individual needs of recipients and should not be relied upon in substitution for the exercise of independent judgement. It is recommended that you obtain independent advice if you are in doubt about such investments or investment services. This Report is intended for use by professional and sophisticated business investors only.

Structured financial instruments are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured financial instrument may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of a company or reference company.

DISCLAIMER


Any investor interested in purchasing a structured financial instrument/ product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this Report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed.]

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This Report has been issued in the United Kingdom only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as “relevant persons”). Any investment or investment activity to which this Report relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, this Report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction.

This Report is not intended for use by, or distribution to, persons in the United States that do not meet the definition of a major US institutional investor under Rule 15a-6 under the US Securities Exchange Act of 1934 (“Rule 15a-6”). The financial instruments described herein may not have been registered under the US Securities Act of 1933 (the “Securities Act”) and may not be offered or sold in the United States unless they have been registered under the Securities Act, or pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act, and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. Any US persons or recipients of this Report located in the United States that are interested in trading financial instruments referred to in this Report should only effect such transactions through a US-registered broker-dealer.

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