adminJOHANNESBURG — The rand weakened to a new record low on Friday, slumping more than three percent in a sell-off by investors after last week’s dismissal of finance minister Nhlanhla Nene, while stocks fell, with banks taking the biggest hit.
President Jacob Zuma sacked Nene late on Wednesday last week in favour of relatively unknown MP David van Rooyen, unnerving investors in an ailing economy whose “investment grade” status is already at risk.
By 10.55pm GMT the rand was 1.58 percent lower against the dollar at R15.7200, pulling back slightly from a slide to the psychologically crucial R16 level.
Yields on local and dollar denominated debt soared as the likelihood of a downgrade to junk spooked investors.
“Markets don’t like uncertainty,” Cratos Capital equity analyst Greg Davies said.
“A lot of the selling is from foreign investors whose confidence in the government has been shaken.”
Credit ratings agency Fitch downgraded SA last Friday, leaving it just one notch above “junk” status, and said on Thursday Nene’s dismissal “raised more negative than positive questions”.
The sacking of Nene has also sparked a sell-off in South African banks, which have dropped nearly 20 percent since Thursday.
Analysts speculated that the Reserve Bank may call an emergency meeting to increase interest rates.
“It’s something that they could do considering the rand has lost 10 percent of its value in the last week,” ETM Analytics currency analyst Jana van Deventer said.
The Reserve Bank surprised markets in November by raising benchmark lending rates for the second time in 2015, warning that failure to act on inflation risks could worsen the country’s already weak growth.
The banking index dropped more than 10 percent in early deals before recouping some of the losses to trade 7.8 percent lower by the afternoon as worries grew that SA’s credit rating would hit profit and drive bad debts among the nation’s banks.
Barclays Africa plummeted 12 percent to R116, FirstRand lost 8 percent to R35.68 and Standard Bank fell 6.8 percent to R98.55.
A downgrade would jack up South Africa’s borrowing costs, which would flow through to the banking system.
The blue-chip JSE Top-40 index dropped 0.9 percent to 43,843, while the broader All-share index was off 1.12 percent at 48,438 points by 10.33am GMT.
The yield on the benchmark government bond due in 2026 has added nearly 200 basis points, or 2 percent, in the last two days to levels last seen during the 2009 recession.
Many economists have questioned van Rooyen’s ability to steady an economy being hammered by the collapse in prices of commodity exports that range from coal to gold, and raised concerns that public spending could spiral out of control.
“If you were going to design a terrible period to fire a minister, this is the perfect time. It’s a real tragedy,” said Graeme Korner, fund manager from Korner Perspective.
Overseas investors also shunned the country’s dollar-denominated debt, with the average yield premium to hold South African debt compared to US Treasuries surging to six-and-a-half-year highs. — Reuters
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