South Africa's rand, bonds rally after Fitch affirms rating; stocks slip

JOHANNESBURG (Reuters) - South Africa's rand rose its firmest in five weeks on Wednesday and government bonds also gained after ratings agency Fitch affirmed the country's investment grade credit status. Stocks fell led by insurer Sanlam, the biggest loser among bluechips, after it flagged lower earnings for the four months to end-April due to slow growth in its markets. By 1500 GMT the rand had gained 1.3 percent to 14.7095 per dollar, its firmest since May 4. The rand has gained 5.5 percent since Friday's decision by S&P's to maintain South Africa's investment grade BBB- rating. Fitch also maintained South Africa's stable outlook, but warned that political tensions could still derail efforts to boost growth. "The decision by (Fitch) not to adjust its outlook on South Africa’s sovereign debt rating to negative is somewhat unexpected, particularly in the context of a deterioration in the country’s economic growth outlook," NKC African Economics' Hanns Spangenberg said. Fitch's announcement gives policymakers more time to implement reforms and boost the economy, before the next round of reviews in December where a "junk" status looms if Pretoria fails to impress, analysts said. "The downgrade risk into junk has certainly not gone away and investors will still be cautious about getting into South African assets too quickly," said BNP Paribas Cadiz Securities economist Jeffrey Schultz. Official data showing the economy had contracted more than expected in the first quarter of the year had earlier weakened the rand, before it was buoyed by Fitch's decision. Government bonds also firmed, with the yield on debt maturing in 2026 falling 5 basis points to 9.05 percent. On the bourse, the benchmark Top-40 index fell 0.7 percent to 47,716 points while All-Share index slipped 0.64 percent to 53,960 points. Sanlam said it expected four-month normalised headline earnings per share to be down 13 percent while flagging a "major impact on first half and full year earnings. Its shares fell 5.07 percent to 63.70 rand. Trade volumes were lower than average, with 242 million shares changing hands compared to last year's daily average of 280 million shares. (Reporting by Olivia Kumwenda-Mtambo and Zandi Shabalala; Editing by James Macharia)