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It’s tricky out there for anyone trading South African markets, with the rand picking up from its lows after president Jacob Zuma sought to repair the damage from the country’s prized investment-grade credit rating being cut to junk.
Speaking at an event in Pretoria, Mr Zuma said he had told Malusi Gigaba, who replaced Pravin Gordhan as finance minister in a divisive cabinet reshuffle last week, to focus on “unity, stability and cohesion” and talk to investors.
Despite the removal of the internationally respected Mr Gordhan, the Treasury’s “policy orientation remains the same,” the president said. Following the reshuffle, Mr Gigaba said he would accelerate “radical economic transformation” as finance minister.
Mr Zuma’s conciliatory tone helped the rand begin to recover after it fell as much as 1.9 per cent against the dollar early on Tuesday morning. But the currency briefly jumped further after the country’s largest trade union called for him to step down.
As Mr Zuma spoke, the country’s largest trade union federation Cosatu, which is in a political alliance with the ANC, called for the president to resign over his “inattentive leadership” and failure to consult on the reshuffle.
Cosatu said it “no longer believes in the leadership abilities of President Zuma, and will be communicating with the ANC and Alliance partners”.
General secretary Bheki Ntshalintshali told reporters that the government’s credit downgrade to junk status “will have inflammatory results on the working class”, and said “we must hold as workers and society at large President Zuma responsible”.
The rand briefly recovered a further 0.5 per cent after the announcement, to turn flat on the day, before falling back again.
At publication time, the currency was 0.33 per cent weaker for the day, at 13.74 per dollar.
Yields on the government’s benchmark 10-year bonds, which rise when prices fall, jumped more than 11 basis points (0.11 percentage points) in early trading, but recovered the majority of their losses after Mr Zuma spoke. At publication time they were up only 1.2bps, at 8.999 per cent.
Speaking at a separate media briefing, Mr Gigaba stressed that the government’s rand-denominated debt is still rated investment-grade by S&P, and said South Africa has a much lower share of foreign-currency debt than most of its peers.
South African bank stocks also recovered some of their early losses. The Johannesburg Stock Exchange banks index was down 1.07 per cent at publication time, having fallen more than 3 per cent at the start of trading.
International investors have tended to welcome any signs that Mr Zuma may be forced to loosen his grip on the government. Nomura’s Peter Attard Montalto noted immediately after Mr Gordhan’s departure that “the market will be watching [for] blowback risk”, though he was sceptical that Mr Zuma would actually be forced to step down.