Markets only have eyes for Cyril
The ANC is said to be deliberating over who the rightfully elected secretary general of the party is, but the market seems to only have eyes for newly elected ANC President Cyril Ramaphosa, with little to no interest in the finer details.
Geoff Blount, managing director of Bayhill capital warned in a statement on Monday night that markets had not priced in the mixed leadership and the euphoria will be re-priced out of the market and it will retrace some of its steps as the reality sinks in.
But that certainly has not happened yet.
The rand indeed lost a few cents in gains, but it remained low at a virtually constant R12.75 to the dollar on Tuesday. On the bond market, the government’s benchmark cost of borrowing improved from 8.85% to 8.66% during Tuesday’s trade. And on the JSE SA Inc – stocks exposed to the South African economy, such as retailers and banks – performed phenomenally, even after gaining in the days leading up to Ramaphosa’s win.
Jordan Weir, a trader at BayHill Capital said “SA Inc” ran all over the show on Tuesday. Trades on the JSE on Tuesday totalled R55-billion – more than double the R24-billion or so traded on an average day. “One trader likened it to a reverse market crash, some of the moves so crazy big.”
The likes of Foschini saw stocks grow 13.9% on the day, Barclays share was lifted 11.5% and Mr Price’s stock jumped just over 10%, Weir said. All dual listed stocks, often earning most or all of their money outside of the country, were “majorly hammered”, he said.
Susan Booysen, a Wits School of Governance professor and author of ‘Dominance and Decline: The ANC in the Time of Zuma’, said the markets didn’t appear to fully understand the nuances of South African politics. “Because if they understood the nuances the market should be dropping because: (Jacob) Zuma is in power; there is a stalemate; and there is an uncertain outcome of the NEC,” she said. “Those three combined for me do not ring well.”
Weir said the optimism was larger from foreigner buyers who were less au fait with the political nuance but also trying to take advantage of the currency strength.
Tinyiko Ngwenya, economist at Old Mutual Investment Group, agreed that the market movements signalled positive sentiments from foreign investors, while local investors were more sceptical of the developments. “Once bitten, twice shy,” said Ngwenya. “We are more likely to wait for February’s budget to see if fiscal consolidation is back as a plan, and how government will address the questions around State-Owned Entities.”
The question of Eskom’s financial sustainability loomed large for local investors, she noted. “We would have to see strong evidence of policy being implemented,” she said.
Said Weir, “I think initially there will be knee-jerk reaction, but everything will normalise and come back down to earth in the next few weeks. I don’t think it will be easy for Cyril to get everything in line.”
Ngwenya said she believe Ramaphosa was the man for the job, but he required a cabinet that backed him.
Although the rand is at a six-month low, Weir said talk in the market is that a recall of national President Zuma could drive the currency down to nearly 12.00 to the dollar.