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Monday, March 8, 2021
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Markets respond positively to a Cyril Ramaphosa win

Thabo Mohlala

The announcement of Cyril Ramaphosa as the new president of the ANC not only sent his supporters in delirious excitement but also saw the markets reacting positively. There has always been a concern among the local business community and the global financial investors and markets about who will ascend the top post of the oldest liberation movement.

Standard Bank released the results of a study it commissioned recently and whose results heralded Nkosazana Dlamini-Zuma’s victory as bad for the country that needed urgent economic growth. Similarly, the report said if Ramaphosa wins the ANC presidency, this will represent a positive and necessary development because of his business friendly “New Deal’ campaign manifesto and his understanding of how markets operate.

Markets observers said the rand has firmed to the strongest level against the dollar in more than three months while bond yields fell and bank stocks surged to a record because traders bet on Ramaphosa’s victory. According to analysts this was a gamble for the traders considering the results were still not known then.

And after Ramaphosa was confirmed as the new mandarin of ANC, the rand moved significantly to firmer territory notching almost 4% against the US dollar to R12.55. Market analysts said the last time the rand hits such strong levels was in early September and this impacted positively on the bonds as well. Other reports indicated that the South African sovereign dollar bonds gained as much as 1.2 cents after the news of Ramaphosa’s win.

Ramaphosa is a trained lawyers and a chief architect of the powerful mining trade union juggernaut, National Union of Mineworkers. He retired from politics – amid speculations that he felt snubbed to take senior leadership position in government by the Mbeki administration – to concentrate on his business interests which saw him become one of the wealthiest black business men. He has pledged that under his leadership he will resuscitate the country’s ailing economy and tackle the rampant corruption that stymied the state’s ability to deliver basic services to the poor.

Goolam Ballim, Standard Bank Economist was quoted as saying: “In the essence, after [the country’s economy] having been adrift for a decade and after having growth slump for many years, it is now the expectation that with Cyril Ramaphosa at the helm, growth will be reinvigorated.”

Ramaphosa’s immediate task is to reassure the jittery markets and sceptical investors that South Africa is still an investment haven. More significantly, he would have to ensure he introduces credible stimulus measures to steers the ship from hitting another possible downgrade iceberg. Moody is the only rating agency that has put South African under review while both S&P and Fitch have already downgraded the country to sub-investment status.

Manik Narain, a strategist at UBS, told Moneyweb that: “Markets are taking the view that ratings downgrades in late February to early March, when the Moody’s review is due, may not happen, at least at that review, and there is a greater chance of political reforms as Ramaphosa does have a strong market track record.”

But other key global investors held back at the excitement that greeted Ramaphosa’s election to being Luthuli House new head honcho. While they sounded positive and see his elevation to the top position as a significant development, they say he is not panacea to the deep economic crisis South Africa was plunged into by the inept Jacob Zuma administration. They still harbour fears that with Zuma still hovering around he may prove to be a stumbling to Ramaphosa’s efforts to fix the economy.

Moneyweb sampled the views of some of the top market investors who are all agreed there is great potential things can change for better under Ramaphosa’s helm.

“Financial markets probably would anticipate Moody’s holding off on a ratings downgrade in March next year. If the election results in a mixed slate with the top six new ANC leaders drawn from both the modernist and traditionalist camps, such expectations could be muted or indeed absent,” said Said Sonja Keller, strategist at JPMorgan, Johannesburg.

Burkhard Varnholt, deputy chief investment officer of Credit Suisse Group AG, Zurich, said there is a need to “re-install a strong and credible finance minister and monetary policy”. He said: “those were always the hallmarks of South Africa’s economic policy. South Africa has certainly lost a lot of its punching power in recent years under the Zuma government, and most of that is most probably behind us.”

Added Nigel Rendell, a senior analyst at Medley Global Advisors, London: “He’s not the answer to all of South Africa’s problems. The government needs to reverse corruption that has impacted the nation over the past 10 years.”

Business Leadership South Africa (BLSA) congratulated Ramaphosa and called upon his new leadership to prioritise the task of dealing with inequality, unemployment and poverty in the country.

It called for a stable policy and regulatory environment that would boost the economic growth and foster inclusive economy that creates sustainable jobs. In its statement, the business body called for a “focused, ethical and moral leadership” from the ANC and a commitment to defeat the state capture and corruption in both the private and public sectors.  BLSA said “when the economy is strong, South Africa is strong. When business does well, society does well too”.  

Said BLSA’s chief executive, Bonang Mohale: “Our call is a simple one: we cannot shatter the hopes of millions of South Africans. Government, business and civil society must work hard together to fundamentally change South Africa from a land in which the majority still live with little hope to one in which they can now live and work with dignity, with a renewed sense of self-esteem and confidence in the future.”

Mohale said the business community under the aegis of BLSA is committed to work with Ramaphosa’s leadership. He said they undertake to work towards “faster, inclusive growth, transformation of our workplaces, growth of small business and, most importantly, job creation – especially amongst our youth”, as set out in their ‘Contract’ with South Africa.

 

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