Market participants hit the nail on the head. Cyril Ramaphosa emerged victoriously and was crowned the new President of the ANC last night.
The rand extended last week’s gains after starting Monday’s trading session just above the R13.00 mark to the U.S. dollar. As the day progressed, the local currency rallied aggressively all the way to below R12.60 ahead of the announcement – it was clear that markets anticipated the announcement of Cyril Ramaphosa as the new ANC president.
Market participants viewed Ramaphosa as a more business/investor friendly candidate. Expectations are that, under his leadership, confidence may be restored in the investment community, especially if the focus is placed on the implementation of credible growth-enhancing policies as opposed to political infighting.
The euphoria was swiftly tempered after the composition of the top six was announced with the local unit easing to R12.75 against the greenback. Nonetheless, yesterday saw a further compression in CDS spreads while bond yields traded lower. Foreigners were net buyers of local bonds yesterday as the yield on the S.A.10-year touched 8.7 (from 9.2 a week earlier).
Ramaphosa announced his election manifesto ahead of the conference that emphasised the need to renew the ANC and to grow and transform the economy – a positive from an economic perspective. However, not all is completely positive. Commentary from political analyst’s caution that the composition of the top six may constrain Ramaphosa from delivering his reform agenda.
The rand eased further this morning, with the local unit touching R12.85 before R09:00 a.m., while the yield on the S.A. 10- year ticked up to 8.8. While the rand had a spectacular run over the last few sessions (in anticipation of the leadership change), there are still risks to the local currency. Further details on future policies and the ability to enact these policies, possible dollar strength and the weak fundamentals could all cause the recent rally to fade.