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Rand, bonds surge as Zuma reappoints Gordhan

Dec 14 2015 09:43

Johannesburg - The rand strengthened, leading gains among major and emerging market currencies, and bonds rallied after President Jacob Zuma bowed to pressure and reversed a decision to appoint a little-known former small-town mayor as finance minister.

The currency had its biggest one-day advance since October 2008 after Zuma late on Sunday reappointed Pravin Gordhan to oversee the National Treasury. Yields on benchmark bonds fell from seven-year highs.

The leader roiled South African assets and sparked outrage on December 9, when he fired Nhlanhla Nene and replaced him with lawmaker David van Rooyen. Gordhan was finance minister from 2009 to May 2014, when he was replaced by Nene, who until then was his deputy. Gordhan steered the economy through the first recession in 17 years, while fending off pressure from labor unions to increase spending.

“The markets will welcome back Gordhan,” John Cairns, a currency strategist at FirstRand’s Rand Merchant Bank in Johannesburg, said in an emailed note. “He is a known entity, is his own man and did well when in the post previously. But it is certainly unreasonable to expect all of last week’s losses to be reversed - a huge amount of uncertainty has been created in the past few days.”

Market moves

The rand gained 4.8% to R15.1723 per dollar at 08:47 in Johannesburg on Monday after falling to as much as 16.0543 on Friday, an all-time low. Yields on rand-denominated bonds due December 2026 declined 96 basis points to 9.42%. Rates on the securities last week jumped the most on record while the currency sank almost 10% against the greenback.

South Africa’s benchmark stocks index posted its worst week in a year in the five days to Friday as the gauge extended a slide into a correction.

On Sunday, Zuma said “after receiving many representations to reconsider my decision” that Van Rooyen will instead head the cooperative governance ministry, under which local governments fall. Gordhan will ensure “adherence to the set expenditure ceiling while maintaining a stable trajectory of our debt portfolio, as set out in the February 2015 budget,” Zuma said in a statement.

The shock appointment of Van Rooyen followed less than a week after Fitch Ratings downgraded the country’s debt to BBB-, the lowest investment-grade level, and Standard and Poor’s lowered its outlook to negative, putting Africa’s most industrialised nation on course for junk status.

“Markets should rally back very strongly but I would not expect a total retracement with a permanent loss of trust in leadership even if we are in a better place,” Peter Attard Montalto, a London-based senior economist and strategist at Nomura International, said in a note.

“Better levels will also give people an opportunity, and liquidity, to exit in a way that wasn’t possible in the second half of last week.”

The rand was trading at R15.17 per dollar just after 09.30.

rand  |  markets  |  currencies
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