Zuma exit spurs South African stock surge
Benchmark FTSE/JSE Africa All Share Index rises 2.7%, its biggest gain since June 28, 2016
South African stocks gained the most since June 2016 after President Jacob Zuma resigned in a late-night address to the nation. Banks rallied to a record amid optimism his likely successor, Cyril Ramaphosa, will improve management of the economy.
The benchmark FTSE/JSE Africa All Share Index rose as much as 2.7 per cent, its biggest gain since June 28, 2016. Standard Bank Group Ltd, FirstRand Ltd and Nedbank Group Ltd all climbed to all-time highs as the sector index gained as much as 4.6 per cent.
“This is just a euphoric bounce on the back of the news and that could pull back just a bit, but unquestionably, the outlook is positive for South Africa for at least the shorter-term,” said Wayne McCurrie, a money manager at Ashburton Investments Management Co. “This is the Cyril bonus.”
Growth has averaged just 1.6 per cent a year since Zuma took office in 2009, undermined partly by a series of policy missteps and inappropriate appointments that rocked investor and business confidence. Ramaphosa is widely expected to adopt more business-friendly policies, prompting the rand to rise more than any other currency against the dollar since his election as ANC leader on December 18.
FirstRand gained 3.4 per cent as of 9:43am, Standard Bank rose 3.2 per cent and Nedbank was 3.2 per cent higher. An index of mining stocks advanced as much as 3.5 per cent, the most since November, as some investors expected a Ramaphosa-led government to review proposed new rules for the industry.
“It’s all positive — the South African shares are positive, mining shares are positive because we’ll probably get a statement on the re-look at the new mining charter, so they’re all flying,” McCurrie said. “Happy days are here again.” There’s still potential for market turbulence in asset classes outside of stocks, Bank of New York Mellon Corp says. “We have not seen the broad capitulation of valuation adjustments across many asset classes,” BNY Mellon senior global market strategist Marvin Loh wrote in a note Wednesday. “In fact, it has only been an equity adjustment at the moment, although many of the thematic catalysts have broader economic undertones.”
He pointed to US highyield debt volatility versus that of stocks, as measured by the Cboe Volatility Index, or VIX. “The volatility in US and euro high yield has actually continued to widen even as stock volatility has fallen,” Loh wrote. “Whether this proves to be a harbinger of additional volatility or a delayed reaction to the better tone from equity markets remains to be seen.
“A case can be made that there should be greater comovements, as most asset classes were considered rich at the start of the year,” the report said.