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'Off to the races' for SA assets as Ramaphosa steps in

Feb 15 2018 14:36
John Viljoen, Thembisile Dzonzi and Colleen Goko, Bloomberg

Cape Town - Stocks surged the most since December 2014, the rand rallied to a three-year high and bond yields fell to a level last seen more than two years ago as market favourite Cyril Ramaphosa took the helm of the South African economy.

“This is the Cyril bonus,” said Wayne McCurrie, the head of portfolio management at Ashburton Investments Management in Johannesburg. “Happy days are here again. So it’s just off to the races.”

Ramaphosa is set to be sworn in as South Africa’s fifth post-apartheid president later on Thursday after Jacob Zuma announced his resignation on Wednesday night.

Growth has averaged just 1.6% a year since Zuma took office in 2009, undermined partly by a series of policy missteps and inappropriate appointments that rocked investor and business confidence. Ramaphosa has pledged to restore fiscal responsibility and root out corruption and mismanagement.

The benchmark FTSE/JSE Africa All Share Index was up 3.5% by 11:39 in Johannesburg. Lenders including Standard Bank [JSE:SBK], FirstRand [JSE:FSR] and Nedbank [JSE:NED] all climbed to all-time highs as the sector index gained as much as 5.4%. Other South Africa stocks - those that benefit from growth in the local economy - also surged, with the personal and household-goods gauge leaping 9.1%.

The rand, already the best-performing major currency over the past three months, extended its run, gaining 0.8% to R11.62 per dollar, its strongest level since February 2015. Yields on benchmark government rand notes due 2026 fell nine basis points to 8.3%, while those on 10-year dollar bonds shaved off five basis points to 5.13%.

Credit risk is falling too, with the cost of insuring the country’s debt against default for five years using credit-default swaps dropping three basis points to 154, lower than those of Brazil and Turkey.

There are risks ahead, according to Adam Cole, the chief currency strategist at RBC Europe.

On the downside, these include the budget presentation next week, which would have to convince investors and rating companies that the new leadership is willing and able to tackle economic challenges. On the positive side, there will probably be a review of the controversial mining regulations that have stymied investment in the sector, he said.

An index of mining stocks advanced as much as 3.5%, the most since November.

“Now Zuma’s behind us, the market’s clearly going to be looking forward,” said Julian Rimmer, an emerging-markets trader at Investec Bank in London. “International investors have generally been underweight South Africa for several years. I think they will all be scrambling to increase those weights.”

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jacob zuma  |  cyril rama­phosa  |  equities  |  jse  |  markets
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