Banks bear brunt of reshuffle turmoil

The JSE All Share index ended a choppy week on a slightly higher note, losing 0.39% to 52 056.17 on Friday but ending the week 0.46% up.

It was mainly mining stocks that supported the All Share following the sharp retraction in the rand after President Jacob Zuma axed Pravin Gordhan as finance minister.

The Resources 10 index gained 5.96% in the week. The gold index jumped 4.73%.

The rand weakened 7.75% in the week, with the trend set in motion by Zuma on Monday afternoon when he recalled Gordhan from an international investor road show.

The banking index lost more than 6% on Friday on foreign selling, dropping 10.02% for the week.

Among Friday’s big losers in the index were Nedbank, dropping 7.35% to R241.50, and Barclays Africa, off 7.16% at R139.15. Standard Bank was 6.47% lower at R143.75.

Old Mutual dropped 2.41% to R33.68, a three-month low.

Banks are expected to remain under pressure. Ratings agency Fitch warns that Gordhan’s axing increased the likelihood of a downgrade.

Fitch said the cabinet reshuffle signalled a change in policy direction and would raise political tension, potentially weakening public finances and standards of governance. Malusi Gigaba had become South Africa’s fourth finance minister in 15 months.

On a more positive note, Citadel chief strategist Adrian Saville said it was unlikely that there would be any substantial policy shifts in the near term due to the cabinet changes.

“But ratings agencies are likely to regard South Africa as a greater investment risk,” said Saville.

The rand had a torrid week. It started Monday at R12.31/$, a 20-month best level, but lost ground to R13.6282/$ with Gordhan’s departure. It recovered to R13.39/$ in late afternoon trade on Friday.

Despite the weaker dollar, spot gold ended the week flat

Bond yields spiked as foreigners sold local bonds with the yield on the benchmark R186 at 8.91% from 8.495% earlier in the week.