A Goldman Sachs team that includes economist Andrew Matheny argues South Africa could win back an investment-grade rating as early as 2028 if fiscal health and growth keep improving. "Our baseline is that South Africa regains its first IG rating in 2028, albeit with two-sided risks to timing," Matheny said. "Markets at this stage in our assessment largely do not price this in."
The country was cut to junk in 2017 after growth sagged and public debt swelled. Goldman expects better fiscal dynamics, firmer growth and a stronger policy backdrop to drive credit upgrades over the next year.
Goldman's models point to room for the 10-year rand bond yield to compress by more than a full percentage point to around 7.6%. The team also sees the sovereign spread on South Africa's dollar bonds outperforming investment-grade emerging markets. Five-year credit-default swaps sat near 116 basis points on Tuesday and could slip to about 100, according to the note.
On equities versus bonds, Goldman writes: "Given the larger rally in fixed income relative to equities observed to date, we see comparatively more structural upside to the latter over time if macroeconomic improvements continue." The bank also estimates roughly 9% upside for the rand against the dollar based on its fair-value work, while noting that "realizing this upside depends in part on the broader dollar."
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S&P Global Ratings and Moody's Ratings currently assess South Africa at BB and Baa2, respectively, which the note describes as two steps below investment grade. Both agencies carry positive outlooks, signaling that upgrades are likely if momentum holds.
If markets are indeed underpricing a path back to investment grade, South African assets have room to re-rate as the story improves. That could mean lower local borrowing costs, tighter dollar-bond spreads, a rand with some catch-up potential and, if the macro keeps healing, more runway for equities after bonds' bigger head start.