Can South Africa, the country that put the "S" in BRICS — the acronym for the best and brightest emerging market economies — escape a trip to the junk heap? It's unlikely that it can.
In this case, "junk" refers to a downgrade of South Africa's sovereign credit rating to below investment grade as the G-20 country has been under pressure amid endless political turmoil and the spillover effect on its economy. As official growth forecasts have been slashed, all indications are that South Africa may yet see its credit rating hit speculative status sooner rather than later.
According to economy watchers, investors are beginning to price in junk status for the beleaguered BRICS nation, where Finance Minister Pravin Gordhan was recently summoned to appear in court over fraud allegations as he fights to keep the country on track.
S&P, Fitch and Moody's Investors Service all have the lowest rung of investment grade assigned to South Africa's sovereign rating. In May, Moody's slapped the country with a negative outlook, warning the government was facing structural challenges to economic reforms.
As a result, analysts are all but counting the months until South Africa's rating gives way. Ratings agencies may cut by year's end, "though it is possible some may wait and see until early 2017," Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman said in an interview.
He added that "downgrades by all three agencies are warranted," despite the fact that investors appear to have been purchasing South African assets with enthusiasm in recent weeks.
The buying spree underestimates mounting political risk gripping the country that is "likely to cement a downgrade to sub-investment grade," Thin wrote in a note to clients in October.