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Ramaphosa no magic bullet for SA - JPMorgan

Dec 18 2017 19:50
Selcuk Gokoluk and Dana El Baltaji, Bloomberg News with Fin24

London - Investors cheering Cyril Ramaphosa's victory in the ANC elections may be getting ahead of themselves.

The reformist agenda of Ramaphosa does have the potential to help accelerate economic recovery, avoid a credit rating downgrade and strengthen the currency, according to money managers including Credit Agricole CIB and JPMorgan Chase.

Yet, markets aren’t factoring in the formidable challenges that could limit progress, they say.

That optimism could prove overdone if the traditionalist faction of the African National Congress challenges a Ramaphosa win or President Jacob Zuma’s supporters hinder the new leader’s programme.

Guillaume Tresca, a Paris-based strategist at Credit Agricole, said the market was clearly pricing in a Ramaphosa win, but warned it was getting ahead of itself.

“First, Zuma could remain president until 2019, which means there is a risk of negative political noise. Second, there could be a balance of power to keep the unity of ANC, so it could be less positive than earlier thought.”

Other investors express similar views:

Sonja Keller, strategist at JPMorgan, Johannesburg said financial markets would have probably anticipated Moody’s holding off on a ratings downgrade in March next year following a Ramaphosa victory.

Mixed slate 

"If the election results in a mixed slate with the top six new ANC leaders drawn from both the modernist and traditionalist camps, such expectations could be muted or indeed absent.”

Nigel Rendell, senior analyst at Medley Global Advisors, London: “The market is assuming that he’s won, which is a brave because the race is really close. The market doesn’t always price things correctly, and in this case, it’s being too cavalier.

“Ramaphosa is not the answer to all of South Africa’s problems. The government needs to reverse corruption that has impacted the nation over the past 10 years.”

Julian Rimmer, an emerging-markets trader at Investec Bank London: “A Ramaphosa victory on a reformist agenda would definitely be positive. The very fact of his paying lip service to the right things would give investors confidence.”

But, “one has to be pragmatic and the best one can hope for is a positive trend in government and economic stewardship. The chances of South Africa looking like a first-class liberal market democracy 12 months from now, fully transparent with no whiff of corruption or wasteful spending is fanciful.”

Paul McNamara, fund manager at GAM UK: “We’ll see the rand move fairly sharply weaker not least because it has strengthened quite a lot in the last few sessions on the view that Mr Ramaphosa is going to win.

"I think the point is more that he is not Mrs Zuma rather than that he has some fantastic agenda.”

Simon Quijano-Evans, strategist at Legal & General Investment Management, London:“Politicians are under pressure to change and they are getting a reaction not just form the local electorate, but from markets. It will be pressure from both those angles that will force change.”

The rand firmed over 4% shortly after the announcement of Ramaphosa's victory over Dlamini Zuma, but retreated to trade 2.58% firmer at R12.75/$ by 19:47.

In addition to Ramaphosa the ANC Top 6 are David Mabuza, deputy president; Ace Magashule, secretary general; Jessie Duarte, deputy secretary general; Gwede Mantashe, national chairperson and Paul Mashatile, treasurer general.

* Fin24 edited the story to include Ramaphosa's victory.

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