Cape Town - South Africa’s rand headed for its biggest
weekly slide since 2015, after the firing of Finance Minister Pravin Gordhan
raised concerns about the country’s fiscal path and its investment-grade credit
rating.
President Jacob Zuma is replacing Gordhan with Home
Affairs Minister Malusi Gigaba, the Presidency said in a statement Friday.
African National Congress lawmaker Sfiso Buthelezi will replace Gordhan’s
deputy, Mcebisi Jonas.
The rand was one of the top three emerging-market
currencies last year and early 2017, but politics are again casting a cloud
over the nation’s assets. Gordhan had fended off a downgrade in South Africa’s
rating to junk, and his commitment to curb spending and government debt had
endeared him to investors. He clashed with Zuma over the affordability of
building nuclear power plants and the management of state-owned companies.
“Market reaction to the cabinet reshuffle and what looks
to have been a clean sweep of the Treasury top team is going to be a
significant negative,” Razia Khan, chief Africa economist at Standard Chartered
Plc, said in an email. “Given past volatility in the rand when a cabinet
reshuffle was even suggested, the expectation is that the impact may be more
pronounced now.”
The rand was down 1.1 percent at 13.4241 per dollar as of
12:19 a.m. in Tokyo trading, leaving it heading for an 8 percent loss for the
week - the worst such performance since the last time Zuma rocked markets with
a finance-minister firing. Back in December 2015, it was Nhlanhla Nene’s ouster
that hurt confidence - an episode that ended with Zuma bringing back the
respected Gordhan to office.
Politics aside, the generally positive environment for
emerging markets, and synchronous pick-up in global economic growth, argues in favour
of South Africa, with its mining assets. Its currency enjoyed a 12.6 percent
jump against the dollar last year - behind only Brazil’s real and Russia’s
ruble among emerging markets, according to data compiled by Bloomberg.
“The annoying, frustrating thing from the South Africa
perspective is that you don’t want political worries now, because things are
trending up, things are picking up,” Moz Afzal, global chief investment officer
of EFG Asset Management, said in an interview in Singapore. “South Africa is
pretty much in the penalty box” for investors now, he said.
As concerns over Gordhan’s position mounted this week,
South Africa’s dollar bonds remained within recent trading rages, and its stock
market was still heading for a weekly advance before confirmation of the
firing. The FTSE/JSE Africa All Share Index was up 0.9 percent through
Thursday.
“Despite the fraught political situation in which South
Africa currently finds itself, we note that dynamics past the immediate horizon
favour out-performance in the country’s assets,” Phoenix Kalen, London-based
director of emerging markets strategy at Societe Generale, wrote in report
dated March 31. The bank’s analysts say that making short bets on the rand is
expensive and seldom works. Kalen advised waiting “for the dust to settle
before entering long positions.”