Assets Tumble in S. Africa as Zuma Dodges Calls to Step Down

  • Rand erases gains, falls to weakest this year as yields rise
  • Zuma cabinet reshuffle led to credit downgrade, calls to quit

South Africa's Zuma Said Surviving Calls to Resign

South African bonds and the rand fell after President Jacob Zuma was said to have bolstered his position by fending off calls from senior ruling party officials to quit.

South Africa’s benchmark rand bond due December 2026 reversed gains, with the yield rising as much as 12 basis points to 9.03 percent before settling back to 9 percent by 5:33 p.m. in Johannesburg. The rand erased a gain of 1.2 percent to trade 0.9 percent down at 13.7544 per dollar, heading for its weakest closing level since Jan. 6. Bank stocks declined.

The reversals came after Zuma survived pressure to resign by members of the African National Congress at a meeting of the party’s National Working Committee on Tuesday, according to two people with knowledge of the matter. The calls were sparked by Zuma’s decision to fire his finance minister and stack the cabinet with loyalists, which led to S&P Global Ratings cutting the nation’s credit assessment to junk on April 3.

“He seems to be surviving for now,” said Koon Chow, a strategist at Union Bancaire Privee Ubp SA in London. “The consequences are playing out. But there’s still hope that he will be recalled. If hope was completely crushed, the currency wouldn’t move by this modest amount. There’s still hope he’s overstepped the mark and that the institutions will force him to step down” before his term ends in 2019.

The rand has dropped 10 percent from a year-to-date high on March 24 as investors speculated that Zuma would dismiss Finance Minister Pravin Gordhan, which he did on March 30, replacing him with Malusi Gigaba. The inability of Zuma’s critics within the ANC to force him to step aside heightens chances that an opposition-sponsored vote of no confidence set for April 18 in parliament fails.

Adding to concern abut South Africa’s fiscal path, Treasury Director-General Lungisa Fuzile said Wednesday he had requested to leave the department as early as May 15, a year before his contract expired. He said he didn’t believe his departure would spark an exodus of top Treasury officials.

Still, the move would “reignite speculation about a hollowing out of the organization,” John Cairns, a currency strategist at Rand Merchant Bank Holdings, said in a note before the departure was announced. The strength of South African institutions including the Treasury was cited as credit-positive by Moody’s this week.

The FTSE/JSE Africa Banks Index fell 2.4 percent to close at its lowest level since Oct. 20. Barclays Africa Group Ltd. dropped 3.9 percent, while Standard Bank Group Ltd., Africa’s largest lender by assets, declined a fourth day.

Zuma’s supporters will exploit S&P’s downgrade to strengthen his position, according to Darias Jonker, an analyst at Eurasia Group in London.

They will rally his “support base around the notion that the concerns of ratings agencies are part of a broader conspiracy by international investors to remove Zuma and to keep the economy in the hands of the white minority,” Jonker said in a research note.

The parliamentary motion of no confidence has a 30 percent chance of passing, he said.

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