Last night President Jacob Zuma announced a vast cabinet reshuffle and one of the changes was the removal of the widely-respected Minister of Finance Pravin Gordhan with Malusi Gigaba.
This may be regarded as a devastating turn of events for South Africa as it can only be interpreted as serving the interests of a few at the expense of political and fiscal stability. It is particularly unfortunate as it has come at a time when SA should be reaping the benefits and taking advantage of rising global growth which in turn is creating tailwinds for emerging market countries, their currencies and assets.
The rand responded by weakening 2% overnight and more weakness can be expected.
The following could transpire on SA financial markets:
- Shares of banks, retailers and listed property to come under pressure.
- Bond yields to sell off.
- Share prices of rand hedge stocks to increase.
Because of the weakening rand the net effect of the above may be more muted on the JSE given the extent of rand hedge exposure which is estimated at more than 50%.
Source: Anchor Capital