Rand Gains With Stocks, Bonds as Zuma U-Turns on Finance Chief

  • Currency rebounds from record low as Gordhan appointed to post
  • Bond yields drop from 7-year highs as Zuma assures on spending

The rand strengthened, leading gains among major and emerging-market currencies, while banking shares and bonds rose after South African President Jacob Zuma backtracked on his decision to appoint a little-known former small-town mayor as finance minister.

The currency advanced as much as 6 percent, the most since October 2008, after Zuma late on Sunday reappointed Pravin Gordhan to oversee the National Treasury. Yields on benchmark notes fell from seven-year highs. Both assets pared earlier gains as global energy prices sank, and credit and equity markets tumbled, damping the effect of Gordhan’s reassurances that the government’s limits on budget spending were “sacrosanct.”

The 73-year-old Zuma roiled South African assets and sparked outrage on Dec. 9, when he fired Nhlanhla Nene and replaced him with lawmaker David van Rooyen. Gordhan, 66, was finance minister from 2009 to May 2014, when he was replaced by Nene, who until then was his deputy. Gordhan steered the economy through the first recession in 17 years, while fending off pressure from labor unions to increase spending.

“Trading is extremely difficult at the moment, the only real thing that we can say is that there’s going to be extreme volatility,” Ion de Vleeschauwer, the chief dealer at Bidvest Bank Ltd. in Johannesburg, said by phone. “It’s very difficult to predict where the currency is going to go when liquidity is low. Prices are horrifically expensive and wide between buying and selling levels. It’s uncertain what is going to happen in the next five minutes, never mind a weekend.”

Market Moves

The rand was 3.6 percent stronger at 15.3181 per dollar at 5:03 p.m. in Johannesburg on Monday, the most of 31 major and emerging-market currencies, many of which were weaker against the greenback in the run-up to the Federal Reserve’s decision this week on interest rates. It fell as far as 16.0543 on Friday, an all-time low.

Yields on rand-denominated bonds due December 2026 declined 41 basis points to 9.94 percent. Rates on the securities last week jumped the most on record, while the currency sank almost 10 percent against the greenback. The Reserve Bank’s independence is guaranteed by the constitution and one of its tasks is to protect the value of the currency, Governor Lesetja Kganyago said in an interview in the capital, Pretoria.

“It is certainly unreasonable to expect all of last week’s losses to be reversed,” John Cairns, a currency strategist at FirstRand Ltd.’s Rand Merchant Bank in Johannesburg, said in an e-mailed note. “A huge amount of uncertainty has been created in the past few days.”

South Africa’s benchmark stock index rallied as much as 2.2 percent, before paring gains to close little changed at 48,081.71. The gauge posted its worst week in a year in the five days through Friday, sliding into a so-called correction. The FTSE/JSE Africa Banks Index jumped the most since June 2006, adding 8.5 percent with FirstRand, RMB Holdings Ltd. and Barclays Africa Group Ltd. leading advances.

“The markets have not recovered completely,” Daniel Isaacs, an analyst based in Johannesburg for 36One Asset Management Pty Ltd., which oversees the equivalent of about $650 million, said by phone. “Confidence in the presidency will still be shaken after this. Many people will be asking if he remains after introducing such volatility into the country’s sentiments.’’

On Sunday, Zuma said “after receiving many representations to reconsider my decision” that Van Rooyen will instead head the cooperative governance ministry, under which local governments fall. Gordhan will ensure “adherence to the set expenditure ceiling while maintaining a stable trajectory of our debt portfolio, as set out in the February 2015 budget,” Zuma said in a statement.

Shock Appointment

The appointment of Van Rooyen followed less than a week after Fitch Ratings Ltd. downgraded the country’s debt to BBB-, the lowest investment-grade level, and Standard and Poor’s lowered its outlook to negative, putting Africa’s most-industrialized nation on course for junk status.

“South Africa, like many other emerging markets, needs to implement much needed structural reforms,” Jacobus Lacock, a money manager at Cape Town-based Fairtree Capital Pty Ltd., which has about 21 billion rand ($1.4 billion) in assets, said by e-mail. “An interest rate hike later this week by the Fed will only increase the pressure on structural reforms. Political willingness and credible institutional policies are important in building trust and confidence amongst investors. ”

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