Hawks move on Gordhan unravels all rand’s good work | Fin24

Hawks move on Gordhan unravels all rand’s good work

Aug 24 2016 08:53
Matthew le Cordeur with Bloomberg

Cape Town – The rand broke through the R14/$-level at the close of business in New York, but returned to R13.93/$ on news that Finance Minister Pravin Gordhan has to report to the Hawks amid the ongoing Sars Wars debacle.

Gordhan’s role as commissioner of the SA Revenue Service when an undercover investigation unit was established is being questioned by the Hawks, who are investigating whether the unit went rogue and performed illegal activities. Some believe these allegations were cooked up as the unit was allegedly sniffing down the wrong Nkandla rabbit hole.

South African bonds also plunged the most since December. Yields on benchmark government rand bonds due December 2026 jumped 47 basis points by 8:40 on Thursday to 8.99%, the biggest move since Zuma roiled markets in December by firing then-Finance Minister Nhlanhla Nene and replacing him with a little-know lawmaker. The rand slid 0.9% to R14.1310 per dollar, heading for the weakest closing level since July 28. The currency plunged 3.1% on Wednesday.

READ: Gordhan blow hits rand as junk status fears return

The market sees Gordhan as key to South Africa’s fiscal reform and discipline and his removal from this position will likely raise the possibility of a ratings downgrade to junk status.

“If Gordhan was to go, I think there has to be a very real chance that we will be downgraded in December,” said Umkhulu Consulting’s Adam Phillips. “Maybe they won’t wait to put us out of our misery.

“In the space of three hours all the good work (aided by yield players) has been undone.”

READ: Gordhan SA’s last bulwark between taxpayers and outright plunder

“It was probably a bit like sitting in Utopia with the rand having strengthened more than R2.00 this year,” he told Fin24. “There we were at 17:30 ending off another day of rand strength and along comes the Daily Maverick story.”

The online publication broke news that Gordhan – and a few other former Sars members – had to be at the Hawks offices on Thursday to receive warning letters, a precursor to an official charge.

“I think if Gordhan is guilty of doing anything wrong, I think he would have bailed out of politics long ago,” said Phillips. “It can only be the ongoing spate between the president and the Treasury. It is ironic that President Jacob Zuma has taken over certain SOEs to sort them out and this now comes out.

“I just cannot believe that Gordhan has done anything wrong and Zuma is playing a dangerous game because it is for such a reason that he and his party lost plenty of votes in the local elections.

“The 29th of July was the last time we were at 13.99 and I am sure there are going to be some nervous importers and offshore yield players around on Wednesday and we are not even sure if there is a charge sheet and exactly what Gordhan and other Sars officials have done.

“This news will mean we see nervousness for the rest of the week,” he said.

Phillips said Wednesday’s release of South Africa’s consumer price inflation data that measures inflation will not have an impact on the rand in this context. However, the US Federal Reserve’s interest rate announcement on Friday will be the big mover.

Until then, Phillips said the rand is more or less safe. “SA will be cocooned in its own ‘risk off’ scenario until some facts come out,” he said.

However, he said: “I think we need to get through the next two before we start even looking at Yellen's speech. The market might not even be told what is really going on, which will just make operators even more nervous.”

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