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Markets react aggressively to Nene axing

Dec 10 2015 12:59
Dane McDonald and Fadia Salie

Cape Town – Local and international markets on Thursday reacted aggressively to the axing of the "capable" Finance Minister Nhlanhla Nene, according to TreasuryOne.

International markets have displayed their disapproval as the rand lost 80 cents against the dollar, 90c against the euro and 110c against the pound, said TreasuryOne director Wichard Cilliers.

READ: Rand weakens to near record after Nene axing

“Since the start of December, the rand has had a torrid time as the perfect storm has developed,” Cilliers said.

Year-to-date the rand has lost over 30% of its value against the greenback.

By 12:30 the rand was at  R15.11/$ in volatile trade. The local unit was trading at R22.93 against the British pound and at R16.55 against the euro.

On the JSE, financial services companies and specifically banks, felt the brunt of the news that President Jacob Zuma on Wednesday removed Nene from the Finance portfolio in Cabinet.

Nedbank [JSE:NED] lost 7.74% to R184.99, Standard Bank [JSE:SBK] gave up 7.21% to R113.55, Capitec [JSE:CPI] was down 3.85% at R549.99 and FirstRand [JSE:FSR] lost 5.8% to R42.91.

Sanlam [JSE:SLM] lost 8.01% to R52.82, Discovery [JSE:DSY] 7.91% at R124.78.

Nene was replaced by largely unknown David van Rooyen. Economists believe Nene was abruptly removed from his post for political reasons, including his reluctance to fund the R1trn nuclear programme, his inquiry into the squandering of funds at the SABC and his ruling against SAA in negotiations with Airbus.

Van Rooyen served as the Whip of the Standing Committee on Finance and as Whip of the Economic Transformation Cluster.

Cilliers described Van Rooyen as “a complete outsider with no experience in Treasury”.

Last week South Africa was downgraded by ratings agency Fitch and put on negative watch by S&P.

READ: S&P revises outlook on SA to 'negative'

According to Cilliers a move to junk could now be accelerated by the latest Cabinet reshuffle.

He predicted that the rand would be on the back-foot on Thursday, as large foreign portfolio outflows were expected from the bond and equity markets as the market digested the news.

“Data releases are minimal and focused on the US initial jobless claims and BOE interest rate decision, this will, however, remain irrelevant as today’s trade will revolve around Nene,” he said.

“The rand and South Africa are in for rough ride before things will go better."

Independent treasury specialist to corporates, Adam Phillips of Umkhulu Consulting, told Fin24 on Thursday it looks like there was some two-way business around the R15.00-level.

"It now looks like the foreign players are in, as it has moved up from 14.93 back to 15.10. You have to ask yourself, would you bring money back into ZAR even at these levels?"

Phillips said the timing of the announcement was a real shocker.  "Yesterday it looked like we were going to get some traction in the ZAR as the EUR continues to stay bid before the Fed meeting next week. The ZAR is really out at sea on its own at the moment. Land seems very far away at this stage.

"If offshore bond investors come it could take the currency to even dizzier heights," said Phillips.

READ: Meet David van Rooyen: The man who must fill Nene's shoes

nhlanhla nene  |  jacob zuma  |  nene fired  |  sa economy
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