South African Markets Hostage to Embattled President's Fate




  • In Business
  • 2022-12-03 06:00:00Z
  • By Bloomberg
 

(Bloomberg) --

Most Read from Bloomberg

  • Musk's Neuralink Hopes to Implant Computer in Human Brain in Six Months

  • Goldman Jolts Traders With Bonus Warning After Bumper Haul

  • Musk Suspends Ye From Twitter After Offensive Image Post

  • Larry Summers Says Fed Will Need to Boost Rates More Than Markets Expect

  • Beverly Hills Cop Was California's Highest-Paid Municipal Worker

The scandal threatening the future of Cyril Ramaphosa's presidency rattled South Africa's financial markets this week and the instability risks inflicting more damage still on the country's currency and bonds.

There's no obvious long-term successor to lead the country if the crisis ends up costing the president his job, so it's unclear what would happen to his reform agend, which is aimed at kick-starting start one of Africa's largest economies. That, investors say, is a recipe for more outsized swings in the rand, which saw its implied volatility this week soar to a level last seen in 2020 when the global economy was reeling from the onset of the Covid pandemic.

"The immediate focus remains on whether the president resigns or fights on," said Matete Thulare, the Johannesburg-based head of foreign-exchange execution at Rand Merchant Bank in a note to clients. "Rightly or wrongly, if he goes, voluntarily or otherwise, the rand will run again."

When news broke that Ramaphosa could face impeachment due to a potential constitutional breach, traders responded by taking an ax to the currency and pushing the country's borrowing costs up by the most since 2015. The cost of insuring the debt against default jumped and South African bank stocks posted the worst one-day loss in more than two-and-a-half years.

The rand enjoyed a bit of respite on Friday, paring some of its weekly decline after Finance Minister Enoch Godongwana said there was just a 10% chance of Ramaphosa leaving office. African National Congress officials are expected to continue discussing the matter over the weekend, with investors eager for any updates.

The nation's currency, which is often seen as a proxy for risk appetite in emerging markets, has lost about 9% against the dollar so far this year. The rand closed Friday at 17.5052 per dollar, and the yield on 10-year sovereign local bonds was at 11.3%.

"It's a very fluid situation, and anything can happen still," said Brad Bechtel, a New York-based currency strategist at Jefferies. "Even if he does resign, it won't change the broader backdrop in South Africa, which still has some challenge ahead of it."

For Wells Fargo Securities strategist Brendan McKenna, the president's resignation could leave a gap in leadership that would stoke political risk and drag the nation's assets lower. But even a decision to stay could call the ANC's strength into question and lead to longer-term market pain, he warned.

The scandal risks hurting the party's credibility, as Ramaphosa was once touted as a figure of anti-corruption, helping the rand to leap 27% between November 2017 and February 2018. He's since struggled to deliver on his reform agenda or ignite economic growth, with the country's jobless rate among the world's worst and major challenges stemming from the electricity sector.

Goldman Sachs Group Inc. analysts also warned that the rand's recent weakening could extend even further if clarity remains elusive for protracted period. "A prolonged process might imply further downside FX risk," economists Andrew Matheny and Bojosi Morule said in a note.

--With assistance from Leda Alvim.

Most Read from Bloomberg Businessweek

  • 11 Hours With Sam Bankman-Fried: Inside the Bahamian Penthouse After FTX's Fall

  • TikTok's Viral Challenges Keep Luring Young Kids to Their Deaths

  • Forget Zoom Calls, Remote Work Startups Want to Build a Virtual Office

  • Ryanair, EasyJet Scale Back in Germany Over Airport Fees

  • Can Duolingo Actually Teach You Spanish?

©2022 Bloomberg L.P.

COMMENTS

More Related News

Meta to Ask Many Managers to Become Individual Contributors or Leave
Meta to Ask Many Managers to Become Individual Contributors or Leave

(Bloomberg) -- Meta Platforms Inc. is asking many of its managers and directors to transition to individual contributor jobs or leave the company as it tries...

What to Look Out for in Biden
What to Look Out for in Biden's Second State of the Union Speech

(Bloomberg) -- President Joe Biden will speak to a joint session of Congress on Tuesday evening against the backdrop of renewed tensions with China and a...

Nomura
Nomura's Japan Staff to Get Bigger Raises as Inflation Quickens

(Bloomberg) -- Nomura Holdings Inc. will give its employees in Japan bigger pay raises starting in April, citing intensifying competition for talent and...

Quake Latest: Turkish Rescuers Race Against Time in Cold Weather
Quake Latest: Turkish Rescuers Race Against Time in Cold Weather

(Bloomberg) -- Most Read from BloombergQuake Toll Hits 4,000 in Turkey, Syria as Overseas Aid FlowsTurkey's South Hit by a Second High-Magnitude...

Biggest South Africa Cement Firm Mulls Sale of Zimbabwe Unit
Biggest South Africa Cement Firm Mulls Sale of Zimbabwe Unit

(Bloomberg) -- PPC Ltd., South Africa's largest cement maker, is considering selling its Zimbabwe business for about $200 million, according to people with...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business