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Markets optimistic about Ramaphosa's win, but hard work lies ahead

Dec 18 2017 22:00
Fin24 team

Johannesburg - Markets were filled with optimism at the news of Cyril Ramaphosa’s election as the new ANC president, but analysts warned that hard work lies ahead to turn the euphoria into real benefits for South Africans.

The rand surged as much as 4% against the dollar before the final result was even known, while markets were buoyed by the news coming out of Nasrec. South African bonds also had a big day with yields declining nearly 40bps.

George Herman, director and chief investment 0fficer of Citadel Investment Services, said Ramaphosa’s victory buoyed investor sentiment in South Africa.

He believed that the composition of the Top-6 leadership of the ANC was a unique mix between the two opposing "slates".  

“This will hopefully ensure unity in the ruling party and guarantee a smooth transition into this new era. The only remaining question is whether Ramaphosa will be able to lead effectively and implement his New Deal.”

He said the South African equity market was caught between the benefit of what promises to be an improved business environment and a much stronger currency.

READ: Ramaphosa no magic bullet for SA - JPMorgan

Magda Wierzycka, Sygnia'S firebrand CEO who has been outspoken against state capture, was also filled with optimism following Ramaphosa's win.

She tweeted that Ramaphosa’s election meant that ANC delegates rejected corruption and that gave her hope for the future.

Yet Herman also cautioned that while a Ramaphosa victory has already proved positive, there was still a long way to go in regaining business confidence and revitalising South Africa’s faltering economy.

“Ramaphosa has a small window of opportunity akin to the famous ‘100 days’ to prove that he is the catalyst for change needed in government.”

“If he stumbles at any time during this embryonic period, he’ll be seen as a token rather than the strong leader needed and market sentiment will quickly turn against South Africa.”

South Africa had suffered from an extreme trust deficit during the last five years, sending business and consumer confidence plummeting, he explained.

Economic policy certainty

Ramaphosa’s key challenge as the new president will therefore be to deliver economic policy certainty in order to regain investor confidence.

“Public-private partnerships can only flourish in an environment where government is viewed as an enabler rather than a stumbling block to doing business,” said Herman. 

He said corporate South Africa was eager to work with government in tackling issues such as poverty and unemployment, but it needed an assurance that corruption won’t impede progress.

“Government’s involvement should be oil to the process, not an abrasive.”

He adds that if business were to see government attempts to root out corruption and deliver a better sense of policy certainty, investor sentiment would “shoot through the roof”.

“This in turn would spark a positive snowball effect that could uplift South Africa’s economic growth and revitalise the overall business landscape.”

He said the real test will be to see whether Ramaphosa’s New Deal and the National Development Plan will finally receive real policy attention rather than lip service.

High expectations

Frans Cronje, CEO of the South African Institute of Race Relations, said that amidst the euphoria of Ramaphosa's election expectations will be very high.

The challenge to the new leadership of the ANC will be to use its current momentum to achieve the required reforms. If it fails, its leadership change will have been largely in vain, he said.

“While Ramaphosa and all those in the media, civil society, and the opposition who opposed state capture must be congratulated, it is opportune to reflect at once on the challenges that lie ahead,” he said.

“In policy areas from crime to education, healthcare and the labour market there are serious crises that will only be resolved through fundamental policy reforms.”

He believed that without growth it would be impossible to meet the demands of people flowing into South Africa's cities in pursuit of a middle class future.

Market friendly outcome

Abdul Azeez Davids, head of research at Kagiso Asset Management, agreed that Ramaphosa’s election was a market friendly outcome.

However, he said the extent of a Ramaphosa "compromise" where three of the party's top 6 were not on his electoral slate, was quite significant.

Be believed that positive market momentum could continue given the significant underweight of South Africa exposure of international emergeing market investors and consensus defensive -  or rand hedge - positioning amongst domestic fund managers.

“We could therefore see continued near term support for banks, insurers, SA retailers, industrials and the currency,” he said.

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