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Rand leads world currency losses as Zuma survives ouster vote

Aug 08 2017 21:45

21:47

Bloomberg - The rand led declines among major currencies after President Jacob Zuma survived a bid by opposition lawmakers to oust him, crushing the prospect of new leadership reviving the country’s economy.

The South African currency dropped 1.3% to R13.40 by 21:45. Yields on the country’s $2bn of Eurobonds due October 2028 were little changed after the vote at 4.75%.

The ruling African National Congress defeated an eighth attempt in Parliament to remove Zuma, whose eight-year rule has been mired in allegations of corruption and mismanagement that weighed on investor sentiment, reduced the country’s credit ratings to junk and sent the economy into recession.

“While the outcome is in line with our and market expectations, the result still leaves room for disappointment as some had hoped that a vote of no-confidence would lead to a more credible government and the introduction of market-friendly reforms,” Trieu Pham, London-based emerging-markets credit strategy analyst at MUFG Securities, said via email.

“Politics will remain in focus as we get closer to the ANC National Conference” in December, when the party will elect a new leader.


20:14

Rand hovers at R13.39/$ as market priced in vote outcome

The rand relinquished its recent gains, falling to R13.41 against the greenback following the announcement that President Jacob Zuma has survived yet another motion of no confidence vote in Parliament on Tuesday - even under the veil of a secret ballot vote.

Yields held steady around 8.5%.

Although weakness was observed in the local currency, the outcome seemed to have been factored into the market as the depreciation of the rand was not very pronounced, said Tumisho Grater, Economic Strategist at Novare Actuaries and Consultants.

"Even though a successful vote of no confidence would bode well for the local unit, the implications for political stability towards year end would have been significant. Today’s unsuccessful vote to remove President Zuma may result in greater unification within the ANC as well as send a strong message to opposition parties."

She said the rand continued to strengthen, reaching R13.12/$ by midday on Tuesday, following the surprise announcement on Monday that the vote would be conducted by means of a secret ballot. Ahead of the announcement, the yield on the SA 10-year bond also traded weaker at 8.5% from 8.6% while the SA 5-year CDS spreads narrowed from 178 basis points to 173 basis points, reflecting a decrease in the country’s perceived credit risk by investors.

On the back of multiple downgrades, a recessionary growth environment and low business confidence, there has been a sense among some market participants that a change in leadership (either through the impeachment of President Zuma or national elections), would reverse the economic underperformance of the past several years, said Grater.

The no confidence vote comes ahead of Friday’s credit rating review from Moody’s. The institution flagged the weakening of South Africa's institutional framework; reduced growth prospects (which were reflective of the policy uncertainty and slower progress with structural reforms) and the continued erosion of fiscal strength (due to rising public debt and contingent liabilities) as the rationale for the downgrade in June. Friday’s rating review is expected to result in an unchanged foreign and local currency sovereign credit rating.


19:41

Politics will stay main driver for markets

The ruling African National Congress defeated an eighth attempt in Parliament to remove President Jacob Zuma, whose eight-year rule has been mired in allegations of corruption and mismanagement that weighed on investor sentiment, reduced the country’s credit ratings to junk and sent the economy into recession.

“While the outcome is in line with our and market expectations, the result still leaves room for disappointment as some had hoped that a vote of no-confidence would lead to a more credible government and the introduction of market-friendly reforms,” Trieu Pham, London-based emerging-markets credit strategy analyst at MUFG Securities, told Bloomberg via email.

“Politics will remain in focus as we get closer to the ANC National Conference” in December, when the party will elect a new leader.


19:32

Business as usual for property sector

Mike Greeff, CEO of Greeff Christie’s International Real Estate: The rand is likely to lose ground now, but real estate will not follow its trajectory, largely due to ever-present and growing demand, particularly in the Western Cape.

“The growth curve in property prices may well flatten a little, but in suburbs and where demand is exceptionally high, property values will continue to grow,” says Greeff.

He comments that with the recent drop in interest rates, the property market has received a boost and there has been some relief for those paying off home loans.

“There are indications that interest rates may drop further, so the message for the property sector is that business will carry on as usual with the possibility of some minor adjustments, says Greeff. “The focus will shift to December for the next phase in the shifting of presidential power.”


19:27


Economist Mike Schussler said SA will stay in uncertain times, and the rating agencies and others will in relative terms at the very least pull SA down a few more steps compared to other countries.

"Investors both local and foreign have already looked at other African destinations and other emerging markets. The people and economy of SA are the big losers here.

I am worried that going forward SA will just spend another few years losing opportunities for jobs, growth, and the people will keep getting poorer.

Rand still on the back foot, trading at R13.42 to the US dollar.


19:13

Rand breaches R13.40, now trading at R13.41 to the greenback.

ALSO READ: Vote to keep Zuma in power a vote for corruption - OUTA


18:45

Cape Town - The rand tanked on Tuesday after President Jacob Zuma survived another motion of no confidence even after the vote was done through a secret ballot.

Altogether 177 MPs voted in favour of the motion with 198 against. There were nine abstentions of the total number of 384 votes cast.

The local unit immediately weakened to R13.39 to the US dollar from an intraday low of R13.11/$.

Although a number of analysts didn’t foresee that the motion would succeed, markets reacted positively on Monday on the back of National Assembly Speaker Baleka Mbete’s announcement that the no confidence vote would be held by secret ballot.

The announcement resulted in an immediate strengthening of the rand at the time, with the local currency rallying to under R13.20. 

The firmer rand also resulted in a late rally in financial stocks and retailers.

Stanlib chief economist Kevin Lings told Fin24 the failure of the no confidence vote to pass means Monday’s rally was not warranted, as nothing fundamentally changed.

The rand and markets will therefore “drift back weaker” as markets will try to assess what will happen next.

“There would however be a sense that South Africa is moving towards some sort of change in leadership and markets will anticipate some change in December at the ANC’s elective conference. and market may focus on that," he said.

All eyes will now be on the ANC’s elective conference in December this year to see whether Nkosazana Dlamini-Zuma, former cabinet minister and African Union chairperson, or deputy president Cyril Ramaphosa will emerge victorious as the next ANC president.

GRAPH: Intraday rand movements against the dollar


The African National Congress's parliamentary caucus welcomed the outcome of the vote. "While we respect the right of any party to table a motion of no confidence in terms of section 102 (2) of the Constitution, we reiterate that we will never endorse or vote in favour of any motion that seeks to cripple our country," it said in a statement following the vote.

"The ANC does not take lightly the public grievances around corruption and state capture as these are genuine and legitimate concerns," it said. "We reiterate that further investigation from all arms of the state including the judiciary must be conducted to unearth wrong doing and the people responsible."

"Parliament, for its part, must ensure that thorough investigations through various committee processes of oversight are conducted into matters of public discomfort. Those found guilty of wrong doing must face consequences including prosecution."

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