Bets on Ramaphosa Help S. African Stock Rally as Risk Wanes

Updated on
  • Optimism over ANC contest adds to commodity gains, weaker rand
  • Technical signals point to most powerful momentum since 2013

Buoyant commodities and a weaker currency have already made South African stocks a tasty treat for investors. Now, some are betting on politics to add to the flavor.

Advancing raw-material prices and the rand’s plunge to the lowest level this year boosted exporters’ shares, sending the benchmark gauge in Johannesburg to a record. Yet, some money managers have remained doubtful on how far the rally could go given President Jacob Zuma’s political maneuvers to sideline market-friendly opponents in the contest to succeed him.

Those concerns were scaled back last week when the Mail & Guardian newspaper reported that Cyril Ramaphosa, the most popular choice among investors to follow Zuma as head of the African National Congress, is leading his rivals. A Ramaphosa victory at next month’s ANC elective conference could increase expectations of improved economic management and reduced tolerance for corruption, boosting consumer confidence and the outlook for South Africa’s financial sector.

“If you think there will be a market-friendly outcome in the December conference, you must buy the banking shares and the retailers,” said Wayne McCurrie, head of portfolio management at Ashburton Investments, a unit of Africa’s second-largest bank. “If you think there’s going to be a market unfriendly outcome, you would buy the mining companies and the big rand hedges, the big dual-listed” companies that gain from weakness in the currency, he said.

Waning political risk helped the main U.S. exchange-traded fund focusing on South Africa to receive the biggest weekly inflows in 19 months.

Investors are paying the highest price in 13 months relative to estimated book values to own South African stocks.

Johannesburg’s benchmark index climbed 0.9 percent to a record 60,539.20 by 9:26 a.m. on Tuesday, rising for a third day and advancing for the ninth session out of the past 10.
Technical charts signal the rally’s momentum is steepening. The weekly relative strength index on the FTSE/JSE Africa All Share Index has risen to the highest level since February 2013. While short-term traders may take the cross above the upper RSI threshold as a sign to sell, long-term investors may see it as a sign of continued strength.

Historical price swings on the gauge, based on 30-day moves, have slid to the narrowest since June 2014. Volatility typically moves in the opposite direction to stocks.

The directional movement index shows South African bulls have tamed the bears by the greatest degree since January 2013.

Even so, short traders are convinced that any optimism over South African politics is overstated and that Johannesburg equities will fall. They added about $70 million of bearish positions in the main ETF last week, taking the bets on declining prices to a record high relative to outstanding shares of the fund, according to IHS Markit Ltd.

The short positions had risen to 20 percent of the fund on Thursday, according to Blacklight Technology Partners data.

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