Resignation marks new era for South Africa rand

Post was last updated: February 17, 2018

Traders couldn’t be happier to see the end of South African President Jacob Zuma’s nine years in power.

The 75-year-old leader had driven Wall Street to wit’s end in recent years amid ratings downgrades, declining growth and a string of scandals. After surviving multiple attempts by opposition parties to oust him throughout his presidency, he agreed to step down late Wednesday.

The rand rallied to its highest level since February 2015, following weeks of manoeuvres by the ruling African National Congress to remove him from office.

“This is a very big relief,” Shamaila Khan, director of emerging markets at Alliance Bernstein said. “Institutions had been deteriorating rapidly.”

Zuma’s resignation opens the path for his deputy, Cyril Ramaphosa, to take the helm of Africa’s most-industrialised economy. Ramaphosa may be sworn in as president on Friday, according to a schedule released by Parliament earlier.

The ANC said it wants a quick transition so Ramaphosa, a 65-year-old lawyer and one of the richest black South Africans, can move to fulfill pledges to revive the struggling economy, clamp down on corruption and rebuild its image ahead of elections scheduled for mid-2019.

South Africa’s five-year credit-default swaps tightened 3.5 basis points on Wednesday to 154 points—14 points away from the five-year low reached in January.

“It’s obviously a positive development and will lead to improvements in institutions down the road,” Khan said.

While the rand had already rallied in anticipation of Zuma’s resignation, a recovery in risk assets should propel the currency even higher, according to Khan.

Ray Zucaro, Chief Investment Officer at RVX Asset Management in Aventura, Florida said he’s willing to increase his exposure now and favours the belly of the bond curve.

“This is kind of what I have been waiting for, to buy the nation’s debt,” he said.

“Zuma’s possible resignation has been brewing like a soup on the back burner for a while.”

Erik Nelson, a currency strategist at Wells Fargo said there’s been this expectation for months now that eventually he would be removed from office.

“Optimism had been priced in after Ramaphosa came to power and expectations for Zuma’s removal climbed.There are still large challenges on the economic, fiscal, and political fronts. I wouldn’t say Zuma being removed is a panacea,” he said.

Nelson expects the rand to gain steadily amid dollar weakness.—Bloomberg

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