Tuesday, March 28, 2017

Bloomberg News - Rand Slumps as Zuma Shock a Reminder of Nation's Political Risk

South Africa’s rand erased its advance to become the worst performer in emerging markets after President Jacob Zuma’s order to abort an international roadshow served as a wake-up call to the country’s political risks.



The currency reversed gains of as much as 1 percent to trade 2.9 percent lower against the dollar after Finance Minister Pravin Gordhan and his deputy, Mcebisi Jonas, were instructed to pull out of meetings in London and the U.S. with investors and ratings companies, the presidency said in a statement Monday, without giving a reason.
The government’s rand-denominated bonds due 2026 fell, driving the yield 33 basis points higher to 8.7 percent, the biggest jump since August, when Gordhan refused to report to a special police unit to be questioned about alleged irregularities at the national tax agency.
“There are some conclusions now being drawn that there’s possibly an imminent cabinet reshuffle,” said Manisha Morar, an analyst at ETM Analytics in Johannesburg. “It puts into question our credit rating and the possibility of a downgrade coming sooner than later.”
Speculation that Gordhan is on the verge of being fired has swirled for months, as he clashed with Zuma over the management of state companies and the national tax agency. But those concerns were overshadowed by an emerging-market rally this year spurred by a decline in the U.S. dollar.
Before Monday, the rand had led gains by developing nations, advancing 11 percent against the dollar. It traded at 12.7883 per dollar as of 6:46 p.m. in London.
“The market was trading with very little political risk being priced in,” said Gordon Kerr, a trader at Johannesburg-based RMB. “We could see the rand consolidate at weaker levels after what has been a brilliant run. The shock of the news may impact the currency for a few days.”
While Gordhan will comply with the order, according to a person familiar with the situation, the roadshow is still going ahead, said Kevin Daly, a money manager at Aberdeen Asset Management Plc.

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