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<\/a><\/p>\n\u201cLand reform is emerging as one of the key issues and it\u2019s clear markets remain nervous,\u201d said Razia Khan, London-based head of African research at Standard Chartered.<\/p>\n
Reflecting investors\u2019 angst, the currency suddenly rallied on Aug. 28 after lawmakers announced they were withdrawing a bill on land expropriation. The surge ended barely 10 minutes later once traders realized it was a procedural move and that the constitutional change was being dealt with separately.<\/p>\n
\u201cThis type of reaction might well become commonplace ahead of the 2019 general elections,\u201d said Nema Ramkhelawan-Bhana, the head of research at Rand Merchant Bank in Johannesburg.<\/p>\n
Morgan Stanley said land reform was \u201cbrought up at just about every meeting\u201d they had with US. investors earlier this year, with the \u201coverwhelming majority\u201d believing the proposal could hurt South African markets. Deutsche Bank AG cited \u201crisks around negative headline news\u201d to do with the land negotiations as one reason to short the rand on Aug. 30.<\/p>\n
Currency traders are bearish. The premium of options contracts to sell the rand over those to buy it in the next three months, known as the 25 Delta risk reversal, soared last week to 5.25 percentage points, the highest in almost three years and the second-highest level in the world after Turkey\u2019s lira. The currency dropped 0.9 percent to 14.8233 per dollar on Monday.<\/p>\n
US. President Donald Trump raised the prospect of South Africa being penalized when he tweeted on Aug. 23 he\u2019d told Secretary of State Mike Pompeo \u201cto closely study the South Africa land and farm seizures.\u201d UK. Prime Minister Theresa May said in Cape Town last week that while she supported land reform, officials should \u201cbear in mind the economic and social consequences.\u201d<\/p>\n
Under Trump, the US has ramped up sanctions against emerging markets, including Russia and Turkey, with the lira buffeted after Washington raised metals tariffs early last month.<\/p>\n
\u201cIt may have been a passing thought which Mr. Trump has already forgotten, or it might be the beginning of a theme for him,\u201d said John Ashbourne of London-based Capital Economics Ltd. \u201cBut Turkey\u2019s experience highlights that even very limited sanctions would have a big market effect.\u201d<\/p>\n
Easing Concerns<\/strong><\/p>\n South African President Cyril Ramaphosa partially eased investor concerns when he wrote in the London-based Financial Times that any constitutional change wouldn\u2019t hurt the economy or the agricultural sector. Expropriation without compensation may be used in specific cases, for example when land is unused or buildings abandoned.<\/p>\n \u201cThis is no land grab,\u201d he said. \u201cNor is it an assault on the private ownership of property.\u201d<\/p>\n Still, the premium investors demand to hold South African debt rather than US Treasuries, known as the sovereign spread, climbed more than emerging-market peers in August, suggesting his announcement of the plan at the end of July is weighing on the country\u2019s assets.<\/p>\n Part of the problem is that investors see few recent examples of successful land reforms elsewhere, according to Khan of Standard Chartered. Many recall neighboring Zimbabwe, where violent takeovers of white-owned farms from 2000 devastated the economy and sent investors fleeing.<\/p>\n \u201cWhenever \u2018land\u2019 is mentioned, unfortunately it is the Zimbabwean experience, as flawed a \u2018reform\u2019 process as that was, that springs to mind,\u201d said Khan. \u201cIt\u2019s very difficult to point to instances, especially in sub-Saharan Africa, with well-known, positive examples of land reform.\u201d<\/p>\n The issue is set to shadow the rand for several months at least. Even if lawmakers produced a draft amendment this year, it would take at least five months from that point for it to be signed into law, according to Citigroup Inc. analyst Gina Schoeman.<\/p>\n \u201cThe issue of land reform is likely to cause repeated volatility in rand exchange rates,\u201d said Elisabeth Andreae, an economist at Commerzbank AG in Frankfurt. \u201cIt\u2019s a hot topic because the expectations of the general population and thus of a large proportion of the electorate on the one hand, and of companies and especially foreign investors on the other, are far apart.\u201d<\/p>\n
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