Local and international markets have reacted aggressively to the axing of the “capable finance minister” Nhlanhla Nene, according to TreasuryOne.
International markets have displayed their disapproval as the rand lost 80c against the dollar, 90c against the euro and R1,10 against the pound, according to TreasuryOne director Wichard Cilliers.
“Since the start of December, the rand has had a torrid time as the perfect storm has developed,” Cilliers said.
Year-to-date the rand has lost over 30% of its value against the greenback.
By 12.30pm, the rand was at R15,11/$ in volatile trade. The local unit was trading at R22,93 against the British pound and at R16,55 against the euro.
On the JSE, financial services companies and specifically banks, felt the brunt of the news that President Jacob Zuma on Wednesday removed Nene from the finance portfolio in cabinet.
Nedbank lost 7,8% to R184,99, Standard Bank gave up 7,2% to R113,55, Capitec was down 3,9% at R549,99 and FirstRand lost 5,8% to R42,91.
Sanlam lost 8% to R52,82 and Discovery 7,9% at R124,78.
Nene was replaced by largely unknown David van Rooyen. Economists believe Nene was abruptly removed from his post for political reasons, including his reluctance to fund the R1 trillion nuclear programme, his inquiry into the squandering of funds at the SABC and his ruling against SAA in negotiations with Airbus.
Van Rooyen served as the whip of the standing committee on finance and as whip of the economic transformation cluster.
Cilliers described Van Rooyen as “a complete outsider with no experience in treasury”.
Last week, South Africa was downgraded by ratings agency Fitch and put on negative watch by S&P.
According to Cilliers, a move to junk could now be accelerated by the latest cabinet reshuffle.
He predicted that the rand would be on the back foot on Thursday, as large foreign portfolio outflows were expected from the bond and equity markets as the market digested the news.
“Data releases are minimal and focused on the US initial jobless claims and BOE interest rate decision, this will, however, remain irrelevant as today’s trade will revolve around Nene,” he said.
“The rand and South Africa are in for rough ride before things will go better.”
Independent treasury specialist to corporates, Adam Phillips of Umkhulu Consulting, said on Thursday it looks like there was some two-way business around the R15 level.
“It now looks like the foreign players are in, as it has moved up from 14,93 back to 15,10. You have to ask yourself, would you bring money back into rand even at these levels?”
Phillips said the timing of the announcement was a real shocker. “Yesterday it looked like we were going to get some traction in the rand as the euro continues to stay bid before the Fed meeting next week. The rand is really out at sea on its own at the moment. Land seems very far away at this stage.
“If offshore bond investors come it could take the currency to even dizzier heights,” said Phillips. — Fin24
