Investors cheer as Cyril Ramaphosa sworn in as South Africa’s president
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
South Africa’s currency and stock market strengthened after Cyril Ramaphosa was inaugurated as the country’s president for a second term having sealed a power-sharing agreement with the opposition Democratic Alliance.
The Johannesburg Stock Exchange rose 1.2 per cent on Wednesday, after surging 3.5 per cent on Tuesday, as investors reacted positively to the prospect of an African National Congress-led government tempered by what they regard as the practical influence of the DA.
The South African rand rose as high as R17.9 against the dollar, clawing back its losses after last month’s election, when the ANC’s dismal showing raised fears it might form a coalition with radical breakaway parties.
“We saw a massive bounce,” said John Biccard, portfolio manager at the London-based asset manager Ninety One. “We’ve had pretty much the best outcome for the markets that you could have hoped for.”
The ANC, which lost its majority for the first time since the end of white minority rule 30 years ago, avoided investors’ nightmare scenario of forming a coalition with the Economic Freedom Fighters or the new uMkhonto weSizwe party of former president Jacob Zuma, both of which espouse a nationalisation agenda. The EFF had promised to nationalise the central bank while MK said it would scrap the constitution.
The pro-business DA, which is now part of Ramaphosa’s government of national unity, is expected to be given several positions in the new cabinet, which is set to be announced in the next few days.
Busi Mavuso, chief executive of Business Unity South Africa, which represents most of the country’s largest companies, said the power-sharing deal “has sparked confidence among businesses and investors that the country has a historic opportunity to make a big leap forward”.
The surge in confidence marks a stark reversal for South Africa’s market, which had been shunned by foreign investors over the past five years, as economic reforms stalled and electricity blackouts became common. But the election result, and 84 consecutive days without power cuts, raised hope that the tide had turned, analysts said.
JPMorgan analysts upgraded South Africa’s market to “overweight” in a new report yesterday. “We believe this is the best-case scenario for South African politics — the DA’s active participation in a government of national unity — and stocks should rally further,” they said.
The bank said that given the long run of foreign outflows, and the all-time low of South African institutional funds’ holding of domestic equities, “we could see big flows into South Africa equities near term”.
However, the analysts warned that the challenge for the new government would be to implement policies and deliver two years of more than 2 per cent GDP growth that would “re-rate the market permanently, not just for a couple of months”.
The JSE’s sharp rise turned many bellwether stocks for South Africa’s economy positive for the year. Shoprite, Africa’s biggest supermarket chain, rose 10.5 per cent this week, while Standard Bank, the continent’s largest lender, is up 7.4 per cent, and insurer Sanlam, up 8.9 per cent.
In a note after the election, S&P Global Ratings said it considered the outcome “broadly favourable for the economic and fiscal outlook”.
“Nevertheless, we expect the government will face an uphill battle to revive growth and maintain fiscal discipline, while navigating the new realities of coalition politics,” it said.
S&P said a partnership with the DA “could drive stronger reform momentum”, but warned there were “vast ideological differences” between the DA and ANC, which would complicate any new government.
Speaking at Pretoria’s Union buildings — once presided over by the architect of apartheid Hendrik Verwoerd, and latterly by Nelson Mandela after winning the first democratic election in 1994 — Ramaphosa said the ANC had heard the message that people “are impatient with political bickering and the endless blame game among politicians”.
But analysts warned the power-sharing deal, which consists of only a statement of intent, could still unravel.
Jonny Steinberg, a South African author now at Yale’s Council on African Studies, said that many ANC officials would find it hard to work with the DA, which they regarded as “the local chapter” of international forces trying to push South African politics towards the right.
Steinberg added that Zuma and Julius Malema, leader of the EFF, were “the two most talented political figures in the post-apartheid era” and still had the potential to destabilise the fragile status quo.
Comments