South African rand, bonds plunge on panel findings against president
The South African rand and government bonds plunged on Thursday afternoon, as investors digested the news that President Cyril Ramaphosa may be impeached following a panel of experts’ findings against him.
The rand weakened by 2.87% to 17.6640 against the dollar at 1530 GMT, suffering its worst day since early May, paring some of the losses that had seen the currency slip to 17.965. The yield on South Africa’s benchmark 10-year local bond closed up 63.5 basis points at 10.92% after spiking above 11.1% in the biggest daily move since the March 2020 COVID-19 induced market rout.
South Africa’s presidency will make an announcement imminently, Ramaphosa’s spokesman said on Thursday, a day after a panel report found preliminary evidence that he may have violated his oath of office and committed misconduct. The president has denied any wrongdoing. Ramaphosa has not been charged with any crimes.
“The uncertainty around Ramaphosa’s presidency has caused a selloff of the local currency as investors now wait for clarity on the ramifications of the report, and what that could mean for the president,” said Bianca Botes, director at Citadel Global. The growing uncertainty around his political future will weigh negatively on sentiment, said Barclays in a note, adding that it could slow the “positive momentum” that South African credit spreads have enjoyed.
South Africa’s sovereign dollar-denominated bonds dropped around 3 cents with longer-dated maturities suffering the biggest losses. The 2052 issue slipped 2.8 cents to trade at 85.414 cents in the dollar, Tradeweb data showed. South Africa’s five-year credit default swap, which insures against a sovereign default, rose 14 basis points at 1327 GMT compared to Wednesday’s closing price to 258 basis points.
While the Johannesburg Stock Exchange closed higher, with the all-share index up 0.26% to 75,020 points, the banks, whose performance largely depend on the local economy, tumbled. The stock market banking index closed down 8.18% at 9635.29 points. In London, shares in financial companies Investec, Old Mutual, Ninety One, and miner Anglo American AAL.L fell 7%, 12%, 5% and 4% respectively, as the falling rand hit shares of South Africa-exposed companies.
Some currency traders noted that the rand was not yet at annual or historically weak levels against the U.S. dollar. “We need to remember that the highs for 2022 are 18.44 so we are about 70-80 cents away from 2022 highs and remember that all-time highs are 19.35,” said Matete Thulare, head of FX execution at Rand Merchant Bank.
He added that the rand had lost more ground against the dollar in December 2015 when then President Jacob Zuma fired the finance minister at the time Nhlanhla Nene.
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