Renaissance Capital, which has correctly predicted eight out of nine sovereign rating decisions in emerging Europe and the Middle East since May, is calling a downgrade to junk for South Africa next month.
That view is at odds with the majority in the Bloomberg survey, but Renaissance Global chief economist Charles Robertson says SA's fundamentals have deteriorated significantly since May, when Moody's Investors Service affirmed its Baa3 rating. The next review is on November 1.
"The macro numbers are not supportive of South Africa keeping investment grade," Robertson said. "Poor growth, tough public finances, a subdued commodity outlook, tension on the streets as seen in the anti-Nigerian riots, questions about the president’s ability to push through his agenda - all these are worrisome."
President Cyril Ramaphosa's ability to implement tough economic reforms is constrained by his tenuous hold on the deeply divided ruling ANC and opposition from its labour union and Communist Party allies, who oppose privatisation, fearing job losses.
The slow pace of action has frustrated investors, driven business confidence to the lowest level since 1985 and weighed on the rand.
Since May, Robertson and his team correctly called rating decisions for Turkey, Pakistan, Abu Dhabi, Qatar, the Czech Republic, Russia, Hungary and Poland. Its prediction for Saudi Arabia was incorrect.
Still, a majority of respondents in a Bloomberg survey said they expected SA to hold on to its investment-grade rating from Moody's, at least for this year.
Moody's is the only major rating company still to assess SA's debt at investment grade. S&P Global Ratings and Fitch Ratings cut their assessments to junk in 2017. Moody's has SA on a stable outlook, meaning it's unlikely to change the rating immediately.
Markets seem to support Robertson's view. The cost of insuring SA's debt against default is higher than that for Brazil, which is rated junk by Moody's. And the country's bond yields are the highest among investment-rated emerging-market sovereigns.
"The best argument that the downgrade does not happen this year is that Moody's does not have it on negative watch," Robertson said. "It's unusual to downgrade without having done that first."