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<p>SARB&#8217;s Independence has been touched, this is a ratings negative. Peter Attard Montalto, Emerging Markets Economist, Nomura joins CNBC Africa for more.</p>


SARB’s independence has been touched, this is a ratings negative – Nomura

<p>By Tiisetso Motsoeneng<span id="midArticle_byline"></span></p>
<p><span class="articleLocation">JOHANNESBURG</span> (Reuters) &#8211; Some of the banks South African regulators have alleged rigged the rand currency say the case against them lacks specific detail about anti-competitive conduct and its impact, three sources with direct knowledge of the matter said.</p>
<p>The banks have also questioned whether the country&#8217;s Competition Commission can penalise banks which do not have subsidiaries or branches in South Africa, the sources said.</p>
<p>The Competition Commission is seeking to impose fines on more than a dozen local and foreign banks that it alleges colluded to coordinate trading in the rand and the U.S. dollar.</p>
<p>The Commission launched the investigation in April 2015, joining a global clampdown that has led to big banks being fined around $10 billion in total for rigging interest rate and forex benchmarks.</p>
<p>It referred the case to the Competition Tribunal, which holds hearings on anti-trust matters before making a ruling. The Commission has recommended that the Tribunal impose fines amounting to 10 percent of the banks&#8217; South African revenues, the maximum allowed.</p>
<p>At a closed preliminary Tribunal hearing in March, some of the banks raised objections about the lack of specific detail in the case to allow their lawyers to present a defence, one of the sources said.</p>
<p>The Tribunal will meet again in July to consider the banks&#8217; objections if the Commission has done enough to fine-tune its case, the sources said.</p>
<p>The Competition Commission did not immediately respond to a Reuters&#8217; request to comment.</p>
<p>Under South African regulations, the Commission is required to investigate anti-competitive cases within South Africa, or those that have an impact in the country.<span id="midArticle_byline"></span></p>
<p>&#8220;If there was an anti-competitive conduct, as the Commission alleges, the question then is: did it have an effect in South Africa? That&#8217;s one jurisdictional issue the banks have raised,&#8221; another source said.</p>
<p>Another issue raised was how banks with no subsidiaries or branches in South Africa would be affected.</p>
<p>&#8220;Some of the banks want jurisdictional issues to be cleared up because some of the them named have no branches in South Africa,&#8221; one source said. &#8220;How do you calculate a fine for banks with no branches in South Africa?&#8221;</p>
<p>Australia&#8217;s ANZ Banking Group has no branches in South Africa. Nomura only launched a branch in South Africa in April last year, almost a year into the Commission&#8217;s investigation.</p>
<p>Among the banks, Barclays Africa Group, a regional unit of Barclays Plc, has been granted conditional immunity from prosecution in return for its cooperation in the investigation.</p>
<p>In February, the local arm of Citigroup was fined $5 million for its role in the affair. The Commission said it had set the fine for Citi Bank NA South Africa at less than 10 percent of its annual turnover after the bank &#8220;undertook to cooperate with the Commission.&#8221;</p>
<p>Other banks named in the investigation were Standard Bank, Investec, JP Morgan, BNP Paribas, Credit Suisse Group, Commerzbank AG, Macquarie Bank, Bank of America Merrill Lynch (BAML), HSBC Plc and Standard Chartered Plc.</p>
<p>Standard Bank, South Africa&#8217;s second biggest bank by market value, said its own internal investigation had found no evidence of any wrongdoing.</p>
<p>&#8220;Nonetheless, Standard Bank is treating these allegations very seriously and will engage fully with the Competition Commission and the Competition Tribunal to better understand the basis for the complaints,&#8221; spokesman Erik Larsen said.<span id="midArticle_byline"></span></p>
<p>StanChart would continue to co-operate with the Tribunal process, spokeswoman Geraldine Matchaba said. JP Morgan, Commerzbank, Bank of America and Nomura declined to comment. Credit Suisse, BNP Paribas, HSBC, ANZ and Macquarie did not respond to email requests for comment.</p>
<p>http://cnbc.africa/news/2017/02/20/south-africa-watchdog-settles-with-citi-over-currency-rigging/</p>
<p>(Editing by Jane Merriman)</p>


Banks raise objections in South Africa’s FX rigging case- sources

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<p>Newly elected President <a href="http://www.cnbc.com/donald-trump/" target="_blank">Donald Trump</a>&#8216;s &#8220;America first&#8221; policies were likely to be an overall negative for emerging markets, but not all will be hit equally, Nomura said in a note on Friday.</p>
<p>While Trump&#8217;s plan to boost U.S. fiscal stimulus might provide an economic fillip to emerging markets, that&#8217;s unlikely to be felt before late 2017, Nomura said.</p>
<p>But it pointed to two other, stronger forces set to batter emerging markets, which tend to be more trade-oriented and geopolitically delicate, before then.</p>
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<p>&#8220;One is a faster Fed hiking cycle and a strengthening of the U.S. dollar, which exposes emerging markets – many of which have become heavily indebted since 2008 – to capital outflows and credit defaults,&#8221; it said. &#8220;The other is what is shaping up to be at the heart of team Trump&#8217;s &#8216;America First&#8217; policies and negotiating strategy: the triumvirate of rising U.S. trade protectionism, tougher immigration rules and a reassessment of U.S. foreign policy positions.&#8221;</p>
<p>Nomura&#8217;s note was published before Trump signed an executive order on Friday to block refugees from seven predominantly Muslim countries from entering the U.S.</p>
<p>Syrian refugees were indefinitely banned. Passport holders of Syria, Iran, Iraq, Libya, Somalia, Sudan and Yemen faced a three-month hold, while refugees from those countries faced a four-month ban.</p>
<p>Attorney generals from California, New York, Washington DC and 13 other states have condemned the move and pledged to fight the &#8220;unconstitutional&#8221; move, Reuters reported.</p>
<p>&#8220;Green-card&#8221; holders, or those already granted the right to live in the U.S., were not exempted.</p>
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<div class="attribution">The executive order set off large-scale protests across the U.S., particularly in places where immigrants were detained as they tried to enter the country.</div>
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<p>In its note, Nomura added that the &#8220;America First&#8221; policy wasn&#8217;t likely to strike all emerging markets equally, with some countries even potentially set for benefits.</p>
<p>&#8220;Emerging markets&#8217; economic starting positions already vary greatly and Trumponomics stands to further widen this chasm,&#8221; Nomura said, adding that while Mexico was most vulnerable, Hungary, Israel, Russia and Peru were least vulnerable.</p>
<p>&#8220;Mexico is singled out as the most exposed but, over time, we believe U.S. trade protectionism could be strongest against Asia,&#8221; it said, noting the U.S. trade deficit with China, which dwarfs the one with Mexico.</p>
<p>&#8220;China also masks Asia&#8217;s massive supply chain: a large share of the value-added in China&#8217;s exports come from other Asian countries, which is reflected in the high share of China&#8217;s imports in other Asian countries&#8217; gross domestic products (GDP),&#8221; it said.</p>
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<p>In a downside risk scenario of tougher policies, faster U.S. Federal Reserve interest rate hikes and additional U.S. dollar appreciation, &#8220;Turkey&#8217;s already very fragile economy is hit hardest and the wind is also taken out of the sails of the Latin American recoveries,&#8221; Nomura said.</p>
<p>But the bank noted that there were some likely beneficiaries.</p>
<p>&#8220;Trump&#8217;s warmer tone towards Russia has increased expectations that sanctions may be lifted or relaxed, but we do not expect it to happen this year. India too could benefit as President Trump seems to believe that a nuclear India is the real check to Pakistan,&#8221; it said.</p>
<p>While Nomura noted that India was vulnerable to the Trump administrations&#8217; new immigration restrictions, it added that the sub-continent&#8217;s economy was driven by internal factors, with less exposure to trade.</p>
<p><em>—By CNBC.Com&#8217;s Leslie Shaffer; Follow her on Twitter</em> <a href="https://twitter.com/LeslieShaffer1" target="_self" class="inline_asset">@LeslieShaffer1﻿</a></p>
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Nomura: &#39;America First&#39; means emerging markets last

<p class="NText">2017 outlook: We expect the marked divergence to continue between what asset prices can do and what goes on in terms of macroeconomics, risk events and politics. Put simply, we expect some recovery in headline real GDP growth, albeit still shrinking per capita income growth, with the ANC elective conference dominating throughout the year to December. However, with South Africa looking somewhat better than peers such as Turkey, we believe asset prices and ZAR especially can do ‘ok’ until potential downgrades come – the timing of which remains uncertain, if still on the horizon.</p>
<h2>Forecast overview</h2>
<p>Are we bullish or bearish for 2017? This is a difficult question. We are only marginally below consensus forecasts for the coming two years on growth (though below official estimates marginally); we are roughly in line with them on CPI inflation (though above the SARB). That might be described as fairly neutral.</p>
<p class="NText">However, in 2016 the market appeared to define a narrative of “off the bottom” as being positive because we have passed the worst of the height of the Nene-gate impact on the economy. We think this is true – and the economy showed its resilience by not going into recession in 2016 despite all the political negativity – as we forecast a year ago. We think in 2017 the key investor question will be “what are the drivers of growth?” We think the answer is likely to be a very loud in 2017: “not much at all”. Indeed, in 2017 we believe the market will become more disappointed about the reforms already proposed and the lack of meaningful new ones forthcoming. Political constraints on government in this area may become more obvious as growth remains low in absolute terms and vs peers and as unemployment grinds higher as the level of employment grows far too slowly to absorb the bulging labour force. The negative effects of a national minimum wage should start to appear, although in our opinion, these will only become evident in the years after as data and studies emerge. Overall, we think negative per capita income growth and negative TFP growth will be the ‘low lights’ of the year in data terms. Looking at it in this way, we are not off the bottom and real incomes are still falling. The market should be more sceptical of official spin on such matters in 2017.</p>
<p class="NText"><strong>READ:</strong> <a href="/news/southern-africa/2015/12/22/sa-economic-insight-2016/">South Africa&#8217;s 2016 risk report, forecast update &#8211; CNBC Africa﻿</a></p>
<p>We expect politics to remain very noisy, but the market has largely become bored of attempting to follow the intricacies of the ANC’s internal machinations. We think the markets will still overplay the tail risk of Zumxit, even though this seems highly unlikely before the December elective conference. In our opinion, internal compromises keeping Jacob Zuma in office after the November ANC NEC meeting will prevent PGxit; however, we believe there is a meaningful (if difficult to pin down) likelihood of a wider reshuffle that could shock the market.</p>
<p class="NText">South Africa however is not as dramatic a risk case at all vs peers and especially Turkey for 2016. Hence, we see South Africa outperforming Turkey at least in H1 2017 or longer if the TCMB’s credibility does not recover. If Turkey overcomes its current obstacle to the executive Presidency by mid-year this should allow the market to focus more on South Africa politics in the region in H2 in the run-up to the ANC elective conference in December.</p>
<p class="NText">Broadly, we see more of a magnified focus on EM under a Trump Presidency with the prospect of higher US policy rates and a stronger USD, which should weigh on South Africa as a dual-deficit country, albeit maybe less so than some of its peers. We see little meaningful upside of US policy on US growth in 2017 and hence are unable to be over-enthusiastic about it and the positive effects on South Africa, especially with a weaker Asia and prospects of US protectionism. The real unknown for 2017 is if South Africa’s yield offering – which since the US elections has provided adequate compensation – will still be protective enough. We think the curve may have to steepen somewhat, but again can outperform peers.</p>
<p class="NText">Ratings again will be an important factor wrapping together medium run growth and fiscal risks as well as the noise from parastatals. Indeed the ebb and flow of events around Eskom, particularly with regard to the issues of contingent liabilities and its nuclear build programme will dominate again.</p>
<p class="NText">In summary, with inflation likely to move lower (but less dramatically than expected by the market previously), growth grinding slightly higher and the labour market stabilising at a (very) weak level, 2017 might be described as ‘ok’, but from a developmental and inequality perspective will not be positive and result in another challenging year.</p>
<h2>Risk timeline</h2>
<p><img decoding="async" loading="lazy" src="/media/19295733/nomura2_600x504.jpg"  width="600"  height="504" alt="Nomura2"/>﻿</p>
<p><strong>Putting all this together we see several broad sweeps of risk narrative:</strong></p>
<p class="NText">Political from President Zuma consolidating at the8 JanuaryANC anniversary celebrations through to the elective conference at thestartofDecembervia the endJune/start JulyANC policy and consultative conference. The9 FebruaryState of the Nation Address from President Zuma, as in previous years, will be an important marker. We then see reshuffle risk throughend Januaryand start February. We also need to keep a continual watch on ANC splits within parliament.</p>
<p class="NText">A fiscal and ratings narrative arch encompassing the Budget expected in thelast week of February, ratings updates to come betweenApril and June(in a longer period than 2016 which saw the agencies more tightly bunched), the MTBPS in thelast week of Octoberand then further ratings updates atend November and start December.</p>
<p class="NText">We see growth broadly constant through the year in y-o-y terms after a step-up in Q1 data out inMarch. Inflation should fall from a December peak (and rebase and reweight published) inJanuarythrough to a bottom in June data out inJulyand then a rise back up to the top end of the SARB’s target.</p>
<p class="NText">We believe the SARB will be steady but hawkish throughout the year, ready to act on a weaker ZAR, higher inflation expectations or an unanchoring of the long end of the inflation forecast.</p>
<p class="NText">Much of the event risk is hard to put on the calendar. For example, the raft of court cases against state institutions and political leadership by opposition parties and the Zuma 783 corruption charge appeals procedure. These narratives will grind on in the background with some regularity.  ﻿</p>
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Nomura&#39;s 2017 outlook for SA: The risk narrative

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<div class="headline">While black swans are inherently unpredictable, Nomura has pointed to 10 potential grey swans to worry about for 2017.</div>
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<p>The black swan concept was popularized by finance professor Nassim Nicholas Taleb&#8217;s book &#8220;The Black Swan: The Impact of the Highly Improbable.&#8221; The book, noting that it was widely assumed all swans were white until the discovery of black swans, highlighted that outlier, or previously unthought-of, scenarios can some to pass with extreme economic impacts.</p>
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<p>But Nomura pointed to what it called the black swan&#8217;s cousin, the grey swan.</p>
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<p>&#8220;These are the unlikely but impactful events that, in our opinion, lie outside the usual base case and risk scenarios of the analyst community,&#8221; it said in a note Wednesday, noting it was avoiding the more usual, well-discussed outliers such as a euro-area breakup, a <a href="http://www.cnbc.com/donald-trump/" target="_blank">Donald Trump</a> impeachment or a China implosion.</p>
<p><strong>Potential shock 1: U.S. productivity might boom</strong></p>
<p>Nomura noted that global productivity has been anaemic since the 2008 global financial crisis and its base case is for U.S. productivity to remain on the low side for years ahead.</p>
<p>But it noted that in the early 1990s, productivity was expected to remain low, but it quickly doubled during that decade&#8217;s tech boom.</p>
<p>&#8220;We know that low investment has been a key contributor to poor productivity. It certainly has been true that investment in buildings and equipment is at recessionary levels,&#8221; Nomura said. &#8220;But investment in intellectual property and R&amp;D is running at close to post-crisis highs. The fact that this form of investment is less tangible makes it easy to miss. It could also provide the foundation for a surge in productivity.&#8221;</p>
<p>The market implications would be &#8220;far-reaching,&#8221; with likely stronger stock markets and more aggressive tightening from the U.S. Federal Reserve, Nomura said.</p>
<p><strong>Potential shock 2: China might float its currency</strong></p>
<p>Nomura said the chances of China letting its currency become completely market-determined anytime soon were &#8220;very low.&#8221; But it added, if China were to suddenly remove its 2 percent onshore trading band and stop intervening in the currency market, <a href="http://data.cnbc.com/quotes/CNY%3D" target="_blank" class="inline_quotes" data-gdsid="612178" data-inline-quote-symbol="CNY=">the yuan</a> would depreciate sharply rapidly.</p>
<p>&#8220;The risk is that rapid renminbi (yuan) depreciation would lead to a sell-off in <a href="http://data.cnbc.com/quotes/.MICN0000NGUS" target="_blank" class="inline_quotes" data-gdsid="49326437" data-inline-quote-symbol=".MICN0000NGUS">local markets</a> and feed through to greater negative regional and global market contagion,&#8221; Nomura said.</p>
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<p><strong>Potential shock 3: The European Union (EU) could reform, leading the U.K. to re-join</strong></p>
<p>&#8220;To suggest Brexit could reverse and become Bremain requires a series of improbable events that most would vehemently disagree with, including us,&#8221; Nomura said, but it added: &#8220;With politics, one cannot rule anything out.&#8221;</p>
<p>Nomura pointed to two potential, if unlikely, scenarios.</p>
<p>In one, the U.K. could unwind the Brexit decision through a general election, amid court cases over whether the U.K. needs Scottish and Welsh parliaments&#8217; consent to exit the European Union. If Brexit runs into roadblocks, the conservatives may call an election in hopes of solidifying a mandate, Nomura said, noting that this could lead to opposition parties winning or a smaller conservative majority.</p>
<p>The second Brexit-reversal scenario would be EU-led, with the bloc offering the reforms that the U.K. has been seeking, such as redefining free movement of labor, Nomura said.</p>
<p><strong>Potential shock 4: Japan inflation might surge</strong></p>
<p>Nomura said the most plausible channel for a Japan inflation jump would be interplay between the <a href="http://data.cnbc.com/quotes/JPY%3D" target="_blank" class="inline_quotes" data-gdsid="616660" data-inline-quote-symbol="JPY=">dollar/yen pair</a> and oil prices. Up until recently, the yen would weaken as oil prices were falling, Nomura noted. But if that correlation were to weaken or flip so that higher oil prices and a weaker yen coincided, Japan&#8217;s inflation could pick up sharply, it said.</p>
<p>If Japan&#8217;s inflation were to rise far enough or were to keep rising in an unstable fashion, the central bank would need to consider exit strategies from its easing programs, Nomura said.</p>
<p><strong>Potential shock 5: The U.S. Federal Reserve could be muzzled</strong></p>
<p>Nomura noted that some have viewed President-elect Donald Trump&#8217;s loud disapproval of the Fed as a potential attack on the central bank&#8217;s independence and potentially opening it up to political meddling.</p>
<p>There was an outside possibility of radical changes, potentially including altering the Fed&#8217;s mandate, such as changing the inflation-targeting basis, Nomura said.</p>
<p>More radically, Nomura noted that Trump has &#8220;expressed sympathy&#8221; for returning to a gold standard.</p>
<p>That would lead to higher policy rates than expected, Nomura said.</p>
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<p><strong>Potential shock 6: Russia may flex its muscles</strong></p>
<p>Nomura noted that investors have increasingly asked about whether Russia might become militarily aggressive in Eastern Europe.</p>
<p>While Nomura said it wasn&#8217;t its baseline expectation, the risk could emerge amid the potential for changes in U.S. foreign policy, potential sanctions renewal and upcoming major European elections.</p>
<p>Nomura said the two most plausible scenarios for potential Russian aggression would be greater involvement in Ukraine, toward the border with Poland, and involvement in the Baltics, particularly Lithuania.</p>
<p><strong>Potential shock 7: A clearing house may fail</strong></p>
<p>&#8220;There&#8217;s been an assumption since 2008 that clearing financial contracts through a central counterparty (CCP) rather than bilaterally between banks (OTC) will reduce systemic risk,&#8221; Nomura noted. &#8220;The idea is that, if all banks face one institution, the CCP, then the failure of one bank could be contained as other banks would face the CCP not the failing bank.&#8221;</p>
<p>But it noted that the downside to that arrangement was that the CCP itself can become a systemic risk.</p>
<p>&#8220;Were it to fail, the fall-out could be worse than the failure of one or two large banks alone,&#8221; Nomura noted.</p>
<p><strong>Potential shock 8: Japan Prime Minister Shinzo Abe loses power</strong></p>
<p>Abe&#8217;s ruling coalition holds a super-majority in the lower house and opposition parties remain unpopular, Nomura noted, saying it boded well for political stability heading into general elections in 2017.</p>
<p>But Nomura noted a potential twist as the four main opposition parties considered nominating joint candidates for each electoral district, which reportedly could cost the ruling party as many as 60 seats, based on 2014 vote totals.</p>
<p>The most extreme outcome would be for Abe be weakened substantially and potentially resign immediately, Nomura said.</p>
<p>&#8220;Were this &#8216;grey swan&#8217; to emerge, Abenomics trades would be unwound. Japanese equities would likely bear the brunt,&#8221; it said. &#8220;In addition, if Japan had an administration involving anti-establishment parties (such as the communist party), investors would likely become concerned about the anti-establishment movement reaching Japan. This would further increase political uncertainty and volatility globally.&#8221;</p>
<p><strong>Potential shock 9: Emerging market capital controls may return</strong></p>
<p>If &#8220;Trumpflation&#8221; causes higher U.S. yields and a stronger <a href="http://data.cnbc.com/quotes/.DXY" target="_blank" class="inline_quotes" data-gdsid="586968" data-inline-quote-symbol=".DXY">dollar</a>, emerging markets could face even more pronounced outflows, Nomura noted.</p>
<p>&#8220;Countries with very high levels of foreign portfolio investment ownership, particularly volatile currencies, low rates and low foreign-exchange reserves would be at most risk from capital controls,&#8221; Nomura said. &#8220;They would also be the ones that markets would look to for more disorderly devaluations either before capital controls were tried or after if they failed.&#8221;</p>
<p><strong>Potential shock 10: Paper money may disappear</strong></p>
<p>&#8220;We are on the threshold when secure decentralised electronic money and payments systems could replace notes and coins in circulation,&#8221; Nomura said, noting that Sweden has already been discussing the prospect.</p>
<p>Nomura said policy makers in developed markets with negative monetary policy rates, such as Europe and Japan, may push in that direction.</p>
<p>In those regions, &#8220;people can simply withdraw their money and put it under their mattress to avoid incurring negative rates,&#8221; it said. But with &#8220;e-holdings,&#8221; negative-rate policies can be transmitted to &#8220;e-wallets,&#8221; encouraging increased consumption, Nomura said.</p>
<p>That could elicit a sharp negative reaction from the public, Nomura noted.</p>
<p><em>—By CNBC.Com&#8217;s Leslie Shaffer; Follow her on Twitter</em> <a href="https://twitter.com/LeslieShaffer1" target="_self" class="inline_asset">@LeslieShaffer1﻿</a></p>
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Nomura

SARB’s independence has been touched, this is a ratings negative – Nomura

Banks raise objections in South Africa’s FX rigging case- sources

Nomura: 'America First' means emerging markets last

Nomura's 2017 outlook for SA: The risk narrative

Nomura's ten grey swan risks to beware of in 2017

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Nomura

SARB’s independence has been touched, this is a ratings negative – Nomura

Banks raise objections in South Africa’s FX rigging case- sources

Nomura: 'America First' means emerging markets last

Nomura's 2017 outlook for SA: The risk narrative

Nomura's ten grey swan risks to beware of in 2017

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