Investors need an Ace
GRAFT CRACKDOWN: RAND, STOCKS GAIN AFTER MAGASHULE SUSPENDED But investors need to see prosecutions, punishments – experts.
Investors in SA assets need a lot more convincing that the government crackdown on corruption will prove effective. The rand strengthened as much as 1% against the dollar on Thursday, the best gain among 15 major currencies tracked by Bloomberg, government bond prices climbed, and the benchmark stock index hit a one-week high after the ANC suspended one of its most senior officials. But market participants were muted in their enthusiasm.
Side-lining ANC secretary-general Ace Magashule after he defied an ultimatum to vacate his post while he stands trial on corruption charges is seen as a boost to the authority of President Cyril Ramaphosa.
“This progress in the fight against corruption will be well received by investors,” said Michele Santangelo, a portfolio manager at Independent Securities. “However, there is some way to go and there will certainly be pushback from those corrupt parties looking to protect themselves.”
Here are some views from analysts and money managers on what the ANC’s actions mean for markets:
Informa Global Markets
Natalie Rivett, emerging-markets analyst:
“It’s rand-positive, as it should allow Ramaphosa potentially more leeway to implement economic reforms and tackle corruption
“The rand should be better placed to return to the 16-month low of 14.148 that was carved out last week, assuming the general risk backdrop does not sharply deteriorate.”
Independent Securities
Santangelo, portfolio manager:
“Critical action is being taken in the best interests of the South African people and the economy.”
The rand has remained on the front foot because of expectations for a weaker dollar for the next 12 months. The current elevated trade surplus along with rising commodity prices and exports is supportive of the rand.
DailyFX
Warren Venketa, analyst:
Addressing corruption “will be positive for consumer confidence and foreign direct investments in the future.
“A small thing like this is not going to have a major impact on the rand ör stock markets yet. Once something more concrete happens, we may see a significant move.”
Gryphon Asset Management
Cassie Treurnicht, portfolio manager:
“They can suspend everyone, but the key lies with prosecuting them. Those accused need to be prosecuted and prosecuted hard before investors will take note. Singling out a few will also do no good.”
Unum Capital
Lester Davids, investment strategist:
“Investors would be encouraged. However, the back and forth also points to a messy and uncertain political environment. Investors will place a greater weight on company performance than a political backdrop.”
Momentum Securities
Stephen Meintjes, head of research:
In addition to the action on Magashule, “asset seizures, as well as SA Revenue Service’s pursuit of the proceeds of corruption are sending encouraging signals to investors who are noticing the better-than-expected balance of payments, thanks largely to the commodities boom”.