Zuma Premium Haunts South Africa as Default Risk Rises: Chart

Not for the first time, markets are disagreeing with South Africa’s President Jacob Zuma.

Zuma said on Sunday the market reaction to his removal of Finance Minister Nhlanhla Nene in December -- which saw the rand plunge to a record and bond yields soar to the highest since the 2008 financial crisis -- was unwarranted. 

Credit default swaps show the move is still haunting the country at a time when a Chinese stock rout is denting investor confidence in emerging markets. Following Nene’s replacement by a little-known lawmaker, the cost of insuring the nation’s debt against default for five years climbed to the highest since April 2009, rising above that Russia, which is rated junk by Moody’s Investors Service and Standard & Poor’s. South Africa has an investment-grade rating with both companies.

Jacob Zuma

Photographer: Waldo Swiegers/Bloomberg

The CDS spread has remained elevated, even after Zuma re-appointed former finance Minister Pravin Gordhan to the position, rising 8 basis points on Monday to 348, a level that implies investors are pricing in a downgrade to junk for Africa’s most-industrialized economy, Investec Plc Chief Economist Brian Kantor said in a Jan. 7 report.

Zuma’s misstep undermined “already very fragile confidence,” Piotr Matys, a London-based emerging-markets strategist at Rabobank, said by phone on Jan. 7. “I lost my confidence after the finance minister was removed.”

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