South African Markets Rally on Fed, SARB Amid Political Turmoil

  • Bonds gain most since December as stocks at 4-month high
  • Rand rallies second day as Zuma battles to save presidency

South African bonds surged the most since December, a benchmark stock index climbed to a four-month high and the rand rallied for a second day as the Federal Reserve’s dovish turn boosted global markets while investors speculated President Jacob Zuma’s grip on power is loosening.

Yields on government rand bonds due Dec. 2026 dropped 30 basis points to 9.17 percent by 5:23 p.m. in Johannesburg, the most since Dec. 15. The FTSE JSE All Share Index gained 1 percent to 53,190.56 the highest close since Nov. 9, while the rand strengthened 2.3 percent to 15.2970 per dollar, bringing its gain in the past two days to 4.1 percent.

The Fed’s decision Wednesday to flag two interest-rate increases this year, down from four forecast in December, came after global finance ministers and central bank governors, including Fed Chair Janet Yellen, agreed in Shanghai last month to use all policy tools to strengthen growth. The rand started reversing losses on Wednesday after a deputy minister said he was offered the finance minister’s post by Zuma’s friends, allegations that may undermine the embattled president’s power.

Rand gains “can be ascribed 90 percent to the Fed and 10 percent to local politics,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in an e-mailed note. “The Fed was undoubtedly rand-positive,” while “speculation is growing that the political problems could be resolved in a market-friendly fashion.”

The South African currency extended gains after the Reserve Bank lifted its policy rate by 25 basis points to 7 percent, citing persistent inflation risks and a volatile currency.

Still Recovering

The rand is still recovering from a decline to a record low in January after Zuma fired his finance minister, Nhlanhla Nene, and replaced him with a little-known lawmaker on Dec. 9. He backtracked four days later, reinstating Pravin Gordhan to the post he had held from 2009 to 2014. The move raised questions about Zuma’s commitment to fiscal targets.

Gordhan’s deputy, Mcebisi Jonas, said on Wednesday he’d been offered Nene’s post by members of the Gupta family, family friends of Zuma and business partners of his son. The revelation came after other ruling party officials said they were offered ministerial posts, and at a time when the economy is threatened with recession and hovering close to a junk credit rating, and just months before the country is due to hold municipal elections.

“As these things are coming out more and more into the open, there’s a much better chance that the law will take its course and that the economy might start heading in the right direction,” Michele Santangelo, money manager at Vunani Private Clients, said by phone. “There does seem to be quite a lot of positive moves from some of the ministers that are coming out and saying that they’ve been offered positions by the Gupta family.”

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