Markets buoyed by Gordhan decision

The rand surged against the dollar and SA’s bank index gained the most in more than seven months after the NPA dropped fraud charges against Pravin Gordhan.

Johannesburg - The rand surged against the dollar yesterday while South Africa’s bank index gained the most in more than seven months after the National Prosecuting Authority (NPA) dropped fraud charges against Finance Minister Pravin Gordhan.

The currency reached its strongest level in five weeks, gaining more than 2 percent to reach a high of R13.5200 against the dollar.

The rand’s gains extended further after South Africa recorded a surprise trade surplus of R6.7 billion in September, from a revised R8.9bn deficit in August.

Government bonds followed the rand, with the yield for the 10-year benchmark instrument sliding 17.5 basis points to 8.7 percent, its lowest since October 10.

The six-member bank index rose to 5.1 percent, the biggest jump since March 17 and the highest since August 24.

Boosted

Goolam Ballim, chief economist at Standard Bank, said the freeing of Gordhan of the fraud charges boosted the rand and buoyed equities that were geared towards the country’s economy, particularly bank shares.

“The banking sector has responded favourably to a variety of reasons in the main. Both the earlier expectation and the actual dropping of the charges against the minister have significant risk to the country’s sovereign standing in international markets,” Ballim said.

George Glynos, managing director and chief economist at ETM Analytics, said: “There’s relief. Across the bond market, you have seen a de-risking of that market just simply because I think the market is going to price in Gordhan’s ability now to focus on the job at hand. That effectively could buy South Africa a little more time with rating agencies.”

Analysts cautioned that local assets remained vulnerable to a possible downgrade to the country’s investment grade credit by year end in the face of anaemic growth, seen by the National Treasury at 0.5 percent this year.

S&P Global Ratings and Fitch, which both rate South Africa’s debt at the lowest investment level, are due to review their assessments in December, while Moody’s is considering its review this month.

Markets were shocked in October after the NPA summoned Gordhan to appear in court tomorrow on charges that were seen as politically motivated.

Feud

Gordhan is embroiled in a feud with President Jacob Zuma over funding of state-owned enterprises.

Investors have been worried the case against Gordhan could lead to his removal from his portfolio. He is respected within financial markets for his efforts to rein in the budget deficit even in the face of weak economic growth.

There was a groundswell opposition from the public, business organisations, reputable members of the ANC, and government leaders when the charges were announced. Yesterday, NPA head Shaun Abrahams said at a briefing that he had withdrawn the charges after reviewing evidence and representations.

Welcoming the dropping of charges, Business Unity SA and Business Leadership SA, said: “South Africa, time and again, is demonstrating resilience and maturity in the face of attacks on our democracy. Our sophisticated economy and hard fought for democracy are a gift that South Africans will protect to the last.”

* With additional reporting by Bloomberg and Reuters

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