/ 24 April 2009

Rand dips as ANC set for big win

South Africa’s rand slipped against the dollar on Friday as some investors worried about the size of the ruling African National Congress’s ANC huge election majority, but firmer global equities limited losses.

In global markets, Asian stocks edged higher as financials gained on hopes that credit fears have eased. Gold rose 1%, which is usually good for the rand, after news China’s gold reserves were now the fifth largest in the world.

South Africa’s ruling ANC looked set for a big win after Wednesday’s vote, hovering around the two-thirds majority that allows it to change the Constitution, a scenario that concerns markets even though the party has stressed it will not abuse the right.

South Africa’s rand was 0,3% weaker at 8,94 to the dollar by 6.43am GMT, with reaction muted since a convincing victory had been expected and the two-thirds majority was arguably a largely symbolic landmark anyway.

”Investors are jittery about the 2/3rd level but we believe it is mainly psychological,” Nomura analysts said in a note.

”In reality it does not make much difference to the economy or market related policy.”

Some investors are worried Zuma will bow to pressure from leftist allies to steer the party away from the ANC’s pro-business stance, although he has little room for major policy shift given the effects of the global financial crisis.

The rand weakened the previous session as the ANC took a commanding lead in early results, but recovered some ground overnight on the back of a Wall Street rally and subsiding risk aversion.

”Those investors with risk appetite tend to flop back towards your riskier prospects and South Africa would probably be seen as one of those,” said George Glynos, managing director of market analysts ETM.

”I think the rand strengthened largely in conjunction with the recovery on Wall Street.”

South Africa’s equities were expected to open weaker despite a Wall Street rally, after a strong showing the previous session. The blue chip Top-40 June futures contract was 0.36 percent lower ahead of the market open at 0700 GMT.

South Africa’s government bonds were a touch firmer with the yield on the 2015 bond up 2,5 basis points to 7,98% and that on the 2036 issue three basis points firmer to 8,11%.

The central bank is widely expected to cut interest rates next week as the economy is on course for its first recession in 17 years.

The central bank started loosening monetary policy in December and has since cut the repo rate by 250 basis points to 9,5% after rates rose by 500 basis points between June 2006 and June 2008. — Reuters