Local markets strengthen after shocks

SOUTH African markets ended a shortened week broadly higher, riding out the political storm that followed the controversial cabinet reshuffle more than two weeks ago.

Banks staged a strong recovery on the JSE in sympathy with the rand and local bonds as markets settled down after a sharp reaction to Pravin Gordhan’s sacking as finance minister, which led to a downgrade in South Africa’s debt rating to junk status.

“I would like to say that the worst is behind us, but I am not sure that I can. There are some major political tensions under the surface here that are assumedly improving, but the fact is that we have no idea how these things are going to play out,” said Petri Redelinghuys, founder at Herenya Capital Advisors.

For the past two weeks or so, sentiment has been dominated by unfolding local politics with market fundamentals taking a back seat.

The rand came within a whisker of R14/$ earlier in the week, from R12.31/$ three weeks ago, demonstrating a sharp swing that analysts say will be a recurring theme before the resolution of political problems.

Treasury has been at pains to calm market nerves. Newly appointed Finance Minister Malusi Gigaba met a batch of investors this week to reassure them on policy continuity.

The All Share index settled 1.24% higher at 53 512.80 points on the week as banks recovered 6% to end a three-week decline. Broader financial stocks also staged a strong recovery, as did retailers.

Gold stocks continued their recent fine form, benefiting from a higher gold price and a relatively weaker rand, even though the currency came off its worst level by Thursday.

“We believe that the recent strength in the rand can be attributed to the postponement of the parliamentary vote of no confidence in the president as they await the judgment from the Constitutional Court regarding the possibility of a secret ballot,” said Kaon Capital CEO Luke Alers.