Secret ballot decision lifts rand
JSE reaches new high
THE RAND yesterday firmed to a month’s high against the dollar, while the JSE hit new highs on news that voting by in today’s motion of no confidence in President Jacob Zuma would be conducted via secret ballot.
The rand shrugged off disappointing second-quarter unemployment data, rising to R13.18 before settling at R13.2613 by 5pm.
The currency traded at R13.45 before National Assembly Speaker Baleka Mbete made her announcement yesterday afternoon, and recovered after she had announced her decision.
Treasury One analyst Allet Opperman said the sharp reaction was based on the fact that the market had already priced in that it was likely that Mbete would allow a secret ballot.
“On Friday, we will have the Moody’s rating review, and the expectation is that there will be no change in the rating, but should there be a rating downgrade, we can expect massive outflows out of South Africa and the rand to take a bit of a knock,” Opperman said.
The local unit has become vulnerable to the possibility that Zuma could be forced out of office. In the build-up to the previous eight motions of no confidence brought against Zuma, the rand has strengthened, only to weaken on his survival.
The rand started the month on the back foot, extending its losses to become the lone loser among emerging-market currencies, which made strides against the US dollar as the greenback nursed losses on scandals engulfing President Donald Trump’s administration.
The rand tanked 3 percent last week, largely boggled down by a Moody’s report that questioned the independence of the SA Reserve Bank and raised concerns about economic growth.
Dollar rally
The rand wobbled on Friday’s US non-farm payroll number that beat market expectations and caused the dollar to rally slightly.
Brown Brothers Harriman said in a note that the rand had been the worst performing emerging-market currency since the beginning of this month, and the local unit was like a “canary in a coal mine” among its peers.
William Jackson, the senior emerging markets economist at Capital Economics, said Mbete’s decision had buoyed the rand and local markets.
“The rand is up by about 1.5 percent against the dollar on the news, while yields on local currency debt have fallen,” Jackson said.
The yield on the benchmark R186 bond, which broadly reflects the cost of government borrowing, slipped about 10 basis points to 8.53 percent in afternoon trade – its lowest level since June – from 8.64 percent on Friday. The FTSE/JSE All Share Index hit a new closing high above 55 400 points, surpassing a record set in April 2015. The index closed yesterday’s session at 56 163 points, from a previous close of 55 945.
Dave Mohr, the chief investment strategist at Old Mutual Multi-Managers, said the rand was playing an increasing role in the prospects of the JSE.
Mohr said the rand had become susceptible to global instead of domestic pressures.
“The improved performance from the local equity market is encouraging, and future real-return prospects are reasonable, if below the long-term average. It remains a very important part of South African investors’ portfolios and should outperform bonds and cash over time.
“However, short-term volatility is always a factor with equity investing, and investors’ patience and perseverance will be tested,” Mohr said.
Peter Attard Montalto, a research analyst at Nomura, said the direction of today’s vote would be pivotal for economic indicators.
“We would expect a very strong positive reaction in South African asset prices if the (no-confidence) vote passes, but after that we may be into a period of much more extreme volatility,” Montalto said.
“If the vote fails, as expected, we would expect some small retracement of today’s (Monday’s) strength after the announcement.”