Investors see long road ahead for corruption crackdown

Investors in South African assets need a lot more convincing that the government crackdown on corruption will prove effective.

The rand strengthened as much as 1% against the dollar Thursday, the best gain among 15 major currencies tracked by Bloomberg, government bond prices climbed and the benchmark stock index hit a one-week high after the ruling African National Congress suspended one of its most senior officials. But market participants were muted in their enthusiasm over the move.

Sidelining ANC secretary-general Ace Magashule after he defied an ultimatum to vacate his post while he stands trial on graft charges is seen as a boost to the authority of President Cyril Ramaphosa. Magashule has repeatedly challenged the South African leader, who is attempting to implement policies to revive growth in the pandemic-ravaged economy.

“This progress in the fight against corruption will be well received by investors,” said Michele Santangelo, a portfolio manager at Independent Securities in Johannesburg. “However, there is some way to go and there will certainly be pushback from those corrupt parties looking to protect themselves.”

Here are some views from analysts and money managers on what the ANC’s actions mean for markets:

Natalie Rivett, emerging-markets analyst, Informa Global Markets Ltd

“It’s rand-positive, as it should allow Ramaphosa potentially more leeway to implement economic reforms and tackle corruption, and could bolster his odds of securing a second term as ANC leader next year.”

Assuming Moody’s Investors Service doesn’t surprise markets in its ratings review scheduled for Friday, “the rand should be better placed to return to the 16-month low of 14.148 that was carved out last week, assuming the general risk backdrop does not sharply deteriorate. Otherwise, 14.686/722 are the key upside levels to eye from a tech perspective.”

Santangelo, portfolio manager, Independent Securities

“What is evident is that critical action is being taken in the best interests of the South African people and the economy.”

The rand has remained on the front foot because of expectations for a weaker dollar for the next 12 months. The current elevated trade surplus along with rising commodity prices and exports is very supportive of the rand.

“The strong rand could reverse again, but it is unlikely in the short term that ANC political infighting will be a major factor in that, unless there is an unexpected significant political risk event.”

Warren Venketa, analyst, DailyFX

Addressing corruption “will be positive for consumer confidence and foreign direct investments in the future.”

“A small thing like this is not going to have a major impact on the rand, stock markets or government bonds just yet. Once something more concrete happens, we may see a more significant move.”

Cassie Treurnicht, portfolio manager, Gryphon Asset Management Ltd

“They can suspend everyone, but the key lies with prosecuting them. Those accused need to be prosecuted and prosecuted hard before investors will take note. Singling out a few will also do no good. Prosecutors need to be given free rein to put those behind bars that belong there.

“There is still a long way to go. We remain skeptical. The rand will continue to take its cue from commodities.”

Lester Davids, investment strategist, Unum Capital

“Investors would be encouraged by any reform regarding corruption. However, the back and forth also points to a messy and uncertain political environment in South Africa. In the bigger scheme of things, investors will place a greater weight on company performance and their ability to generate revenue and profits than a political backdrop.”

Stephen Meintjes, head of research, Momentum Securities

In addition to the action on Magashule, “asset seizures by the Special Investigating Unit and independent directorate of the National Prosecuting Authority, as well as South African Revenue Service’s pursuit of the proceeds of corruption are sending encouraging signals to the public as well as investors who are also noticing the better-than-expected balance of payments, thanks largely to the commodities boom.”

Read: ANC drama means very little for economic reform: analyst

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Investors see long road ahead for corruption crackdown