In what has been one of the most turbulent weeks in South Africa's markets, President Jacob Zuma re-appointed Pravin Gordhan as finance minister on Sunday.
This comes after Zuma sacked Nhlanhla Nene from the ministry late on Wednesday, and replaced him with the relatively unknown lawmaker David van Rooyen.
The rand which hit a record low breaching 16 to the dollar on Friday recovered to trade at 15.47 on the news of Gordhan's appointment.
All eyes will now be on the bond market where yields reached their highest levels in seven years and the JSE which posted significant losses following the announcement by Zuma to replace the Minister of Finance. According to JSE CEO Nicky Newton-King, "Investors, ranging from individual retirees to huge pension funds, have seen the value of their holdings plummet. Businesses already under pressure now face increases coming from rising borrowing costs and a weaker Rand which devalued from R14.53 to R15.89 (9.36%) against the USD and from R15.94 to R17.45 (9.47%) against the EUR in the two subsequent days.
"Thursday 10 and Friday 11 December 201 saw exceptional trading volumes across most platforms of the JSE:
- The FTSE/JSE Financial15 Index (FINI) dropped 13.36% from 15 600 to 13 515
- The FTSE/JSE Banks Index lost 18.54% dropping from 6 556 to 5 340
- The FTSE/JSE All Share Index (ALSI) dropped 1 456 points in those two days, closing at 48 068 on Friday, down 2.94%
- The FTSE/JSE Top 40 Index shed 987 points over the same period, closing at 43 558 on Friday
- The entire market cap fell R169.6bn from R11.35tr to R11.18tr (1.49%)
Sasfin's deputy chairman responded to Gordhan's appointment by saying:
Peter Attard Montalto, an analyst at Nomura International issued the following statement on Gordhan's re-appointment:
You can't make this up. After the shock appointment for Van Rooyen on Wednesday night he didn't even have his feet under the desk and he is now off to be Minister of Cooperative Governance with Pravin Gordhan moving back to his old job as Minister of Finance. Our initial understanding is that there was such a sense of the country wide grief at the loss of Nene and gloom and pessimism from civil society, business, unions and others that mobilisation were increasingly made within the ANC, to ANC Secretary General Mantashe especially, which forced this change.
He is very market friendly, fiscally conservative and a welcome move (though I suppose this begs the question why we simply couldn't go back to Nene?!). But what on his views of saa and nuclear? That's the question now he has been appointed and those issues need to be watched carefully still even with Pravin back. We should remember that NT was not an "easy" place under him in the past with staff loss. This spoke to his personal political power and his strong personal views.
Fiscal I think is now back to where we were post MTBPS - medium run risks which NT will grapple to deal with in a low growth environment, adding in NHI, tax challenges etc.
Markets should rally back very strongly but I would not expect a total retracement with a permanent loss of trust in leadership even if we are in a better place. Better levels will also give people an opportunity (and liquidity) to exit in a way that wasn't possible in the second half of last week. Unpredictability premia and the saa and nuclear issues still there will demand some weakness remain. I think we also see a degree of permanent negative shock into growth and private sector investment - damage. The SARB will likely have to still do a large hike in January after this and given (lets not forget!) the Fed is coming up this week - Maybe we are talking 50bp now rather than 100bp as we were previously thinking about. The SARB, staying quiet, not intervening and not doing emergency meetings, comes out of this looking very good however.
What this tells us is that whilst last Wednesday looked like a strong and powerful move by Zuma - a victory for the tenderpreneurs - the fact the ANC is a broad church has actually forced him to reverse his decision in a very damaging move for him personally. It may also speak to a more nuanced and split of ANC with the left and conservative centre left able to still have more influence that thought before.
For me this raises the risk of a recall especially as the economic damage becomes evident. That risk remains low however. We are in a situation where Zuma clearly thinks he has a lot of power but actually its more nuanced. Internally in ANC and amongst the 2017 electorate I wouldn't downplay people seeing this as a positive that he "listened" and "changed his mind". The narrative I was thinking last week of maybe this action hastening a shift (maybe even an early elective conference to avoid Ramaphosa taking over) to Dlamini-Zuma is still valid. However this must harm her camp to some degree to the benefit of Ramaphosa.
Nene remains in the wilderness which I think speaks to the fact his sacking was "real" and "personal" around saa and nuclear etc and it was not an acceptable political option to bring him back. Putting Van Rooyens in Cooperative Governance saves him some face but the problem remains that he has no experience.
All eyes will increasingly remain on politics and especially that "other" reshuffle (energy) we still see as on the cards maybe in the new year now. We also watch to see the level of economic damage done in the upcoming data.
Former African Development Bank Group president had this to say