Back to normal, for now…

South African stocks hit an 11-month high on Tuesday, as markets calm a month after the surprise ousting of the country’s finance minister, but analysts warned that political worries could rear their heads again soon.

The FTSE/JSE All-Share index climbed 1 per cent today, hitting a high of 54,255, its highest level since June 2016.

Bank stocks, which were particularly badly hit by the sacking of finance minister Pravin Gordhan and his deputy in an extensive cabinet shake-up, have yet to fully recover, but the Johannesburg Stock Exchange Banks Index has picked up 8 per cent from the lows hit after the reshuffle.

The rand, similarly, has recovered from its lows but settled around weaker levels than before Mr Gordhan’s departure.

In an update on the country today, Nomura’s Peter Attard Montalto predicted the rand will remain “broadly flat through its current range” until the end of the month.

Mr Montalto said the new cabinet has adopted a “‘do no harm’ mantra” that has allowed markets to stay “relatively calm”.

In that context, South African assets are instead being driven by more normal emerging market concerns including economics, interest rates and commodity prices.

Data from quantitative research group Quant Insight suggest the strongest factor behind recent moves in the currency has been changes in the price of iron ore – one of South Africa’s key exports – which has been knocked by fears about waning demand in China.

However, Mr Montalto predicted that political concerns could come to the fore again as figures in South Africa’s ruling ANC jockey for position ahead of December’s leadership election.

The party will hold a policy conference at the start of next month, and Mr Montalto predicted “factionalism” is likely to increase after the conference, which will “create particular issues” for the new finance minister Malusi Gigaba.

President Jacob Zuma has already pledged to pursue “radical economic transformation”, including repeated suggestions that the government could begin expropriating land without paying compensation to owners in an effort to reduce “white monopoly control” over the economy.

Mr Montalto said “we remain sceptical about eventual implementation of more aggressive land reform”, but added that it is likely to become “a key wedge in the policy conference to delinieate factions”, and “the use of it as a political tool has negative investor connotations that are so important”.

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