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Rand, bonds fall as junk rating triggers index exit

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Cape Town - The rand and dollar bonds fell after Fitch Ratings became the second company to cut the country’s credit assessment to junk, triggering sales by some investors tracking investment-grade debt indexes. JPMorgan Chase & Co. said it would remove South Africa from gauges tracked by $59bn of funds.

President Jacob Zuma plunged South Africa into a political crisis when he fired Finance Minister Pravin Gordhan in a cabinet purge just after midnight on March 31, prompting a drop in the rand and triggering a downgrade to junk from S&P Global Ratings. The move by Fitch means the country’s foreign-currency debt will now be considered sub-investment grade, and brought the local-currency assessment to the cusp of junk.

“Another downgrade in just one week is a major blow,” said Piotr Matys, an emerging-market strategist at Rabobank in London. “It means that even those foreign investors that are still relatively optimistic about the long-term outlook for South Africa may have to trim their exposure. In the coming weeks, we will probably witness a wave of capital outflows.”

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