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The transfer of power in South Africa has pulled the rug from under the feet of some short traders.\u00a0At stake: more than $5 billion (R57.9 billion at 08:00 SAST on 16 February).<\/p>\n
Three out of four stocks in Johannesburg rallied on Thursday (15 February), sending the benchmark FTSE\/JSE Africa All Share Index to the biggest increase since 2014 and the rand to a three-year high, as Cyril Ramaphosa\u00a0replaced\u00a0Jacob Zuma as president.<\/p>\n
The end of a political wrangle that made South African assets among the world\u2019s most volatile left bears staring at potential losses in some of the country\u2019s best-performing equities.<\/p>\n
South Africa has underperformed emerging-market peers this year as efforts to oust Zuma turned into a see-saw game, with the defiant 75-year-old leader refusing to resign late as Wednesday.<\/p>\n
That, and the blow to exporters from a stronger rand, had made bearish bets against the country\u2019s equity market attractive.<\/p>\n
But once Zuma stepped down, the outlook seemed to have reversed. For the first time since September 2016, investors are paying a premium to own South African shares rather than global stocks.<\/p>\n
Steinhoff Africa Retail, in which short seller Viceroy Research had flagged financial irregularities, jumped 5%.<\/p>\n
Short positions accounted for 14.7% of the company\u2019s free-floating equity, according to IHS Markit data. Truworths International, which had 12% of its free-floating share capital shorted, climbed 4.3% to a 22-month high.<\/p>\n
The biggest short position was in Kumba Iron Ore, with about $475 million, or 35% of its equity. The share increased as much as 6.1% before erasing gains.<\/p>\n
Thursday\u2019s rally also sent Nedbank Group, Shoprite Holdings and FirstRand to record highs. All three shares had witnessed an increase in short positions over the past month.<\/p>\n
The one wager that short traders seemed to have got right was in property investment-related stocks. Resilient REIT Ltd, which saw pessimistic bets increase to a record, plunged 12%, the most ever. NEPI Rockcastle Plc, Fortress REIT and Greenbay Properties also slumped, boosting gains for short traders.<\/p>\n