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The rand weakened, yields on benchmark bonds rose and retail and banking stocks fell as a report showed that South Africa\u2019s economy shrank the most in nine years in the first quarter, casting a pall over President Cyril Ramaphosa\u2019s promise to boost growth.<\/p>\n
Ramaphosa, who replaced Jacob Zuma in February, has pledged measures to fuel the economy, boost employment and attract investment after four years in which output never managed to expand more than 2% annually.<\/p>\n
But the latest data show he has a mountain to climb: gross domestic product contracted an annualized 2.2% in the first quarter of the year compared with the prior three months.<\/p>\n
“We\u2019ve seen the \u2018Ramagloss\u2019 rub off and now markets are focusing on the fundamentals of South Africa,” Michelle Wohlberg, a fixed-income trader at Rand Merchant Bank in Johannesburg, said by phone.<\/p>\n
“Bonds and the rand will continue to trade defensively in the short term.”<\/p>\n
The rand fell as much as 2% and traded 1.7% weaker at R12.7817 per dollar by 5:14 p.m. in Johannesburg. Yields on benchmark 2026 government bonds climbed eight basis points to 8.65%.<\/p>\n
An index of banking stocks fell 3.4%, the most in three weeks, while shares in general retailers dropped 2.3%. The benchmark stocks gauge dropped 0.2 percent, supported by gains in so-called rand hedge stocks that benefit from weakness in the currency because of revenue earned abroad.<\/p>\n
Banks and retailers \u201care quite dependent on an improving macro and improving fundamentals in South Africa,\u201d said Brad Preston, chief investment officer at Mergence Investment Managers Ltd in Cape Town.<\/p>\n
“But this is a backward-looking number, it was largely expected to be quite negative. I\u2019d imagine the move to be quite short-term sentiment-driven.”<\/p>\n
Ramaphosa\u2019s rise to power since December initially boosted sentiment and the rand following Zuma\u2019s scandal-ridden tenure, but confidence indexes have now returned to levels they were at late last year as businesses seek real reforms. Output expanded 0.8% year-on-year in the first quarter, below the economists\u2019 estimate of 1.5% and short of the central bank\u2019s full year forecast of 1.7%.<\/p>\n
The weak GDP data may force the South African Reserve Bank to adopt a more dovish policy path in support of the economy, said Per Hammarlund, the Stockholm-based chief emerging-market strategist at SEB SE.<\/p>\n
The central bank last month left its main policy rate unchanged, and hinted that further loosening was off the table as inflation pressures build.<\/p>\n
“It will take years to see the effects if Ramaphosa succeeds in implementing structural reforms to boost employment, investment and potential growth,” Hammarlund said.<\/p>\n
“The rand is depreciating because of the reality check provided by the GDP number, and because slow GDP growth may prompt the Reserve Bank to take a more dovish stance despite an expected uptick in inflation.”<\/p>\n