JSE snaps three day rally, rand firms as Cabinet appointments on investors’ radar

Analysts said the markets will now be watching President Cyril Ramaphosa’s Cabinet appointments with interest. Picture: Henk Kruger/Independent Newspapers.

Analysts said the markets will now be watching President Cyril Ramaphosa’s Cabinet appointments with interest. Picture: Henk Kruger/Independent Newspapers.

Published Jun 21, 2024


Nicola Mawson

The JSE snapped a three-day rally yesterday, with the All Share Index ending trade 0.8% weaker at 80 073 index points while the rand retreated back to R18.17 levels against the US dollar at one point yesterday, as investors adopted a cautious stance in anticipation of a Cabinet representing the Government of National Unity (GNU) following President Cyril Ramaphosa's inauguration.

This comes after both the JSE’s All Share Index rose by more than 3.7% to an all-time high above 81 000 points-mark on inauguration day on Wednesday, while the rand also broke a key barrier earlier and dipped below the R18/$1-mark on heightened investment sentiment.

Bianca Botes, director at Citadel Global, yesterday pointed out that the currency traded at its best level in 11 months on Wednesday, continuing to capitalise on upbeat sentiment around South Africa’s future prospects.

The rand has continued to remain strong at R17.96/$1 this morning, despite some profit-taking on bonds and equities while the JSE All Share Index also started trade on a positive note at 80 135 points.

TreasuryONE head of market risk, Wichard Cilliers, said the local currency was trading marginally firmer against the greenback while it was showing some good gains against both the euro and pound.

Cilliers said the demand for South African assets continued, with investors proceeding to buy local government bonds and equities.

“Markets will now be watching President Ramaphosa’s Cabinet appointments with interest, and, given the rapid pace of the rand's strengthening over the past few days, we could see some consolidation in the short-term,” Cilliers said.

“Considerable challenges still remain for the GNU to work successfully and only time will tell whether we are on a sustainable political path.”

Old Mutual chief economist, Johan Els, told Business Report that both the JSE and the rand had benefited from the optimism and a better economic outlook.

Els said foreign investors were light on South African equities and the global market was currently in a risk on period, but he was confident in South Africa’s strong legal and constitutional frameworks and institutions as well as in political risk.

“The markets are very excited about the prospects of a government of national unity with the prospects of better, more sustained economic growth down the line,” Els said.

“A reduction in the risk around policy implementation, in turn, means stronger confidence. There is a very strong link between confidence and growth.

“For a long time, I have said that the outlook for the South African economy has improved quite substantially over the last few years through what I call privatisation by stealth.

“The co-opting of the private sector to help government sort out logistical constraints, structural issues such as electricity and Transnet’s issues. And that private sector role in the economy has grown significantly.”

From average economic growth of 1% between 2015 and 2019, Els had anticipated this improving to 2.5% in the near future as the private sector helps bail government out but said the GNU would probably enhance that.

Els said other constraints to growth still needed to be removed such as the skills deficit, which could hinder South Africa from going above 5% in gross domestic product growth.

“As we see continued improvement in confidence, we can start talking about more (like) 2.5% economic growth, perhaps around 3% on a more sustained basis. And yes, that's not enough. We need 5.6%,” he said.

While there were still some hurdles ahead in terms of agreements on policy and policy reform, Els said he believed that the current situation was a far better opportunity than at the start of the Ramaphosa presidency.

“I don't think that this is the Ramaphosa that fizzled out in 2018. This is something different. This is more durable.”