How world sees SA: Markets may rebound but permanent loss of trust in Zuma
One of the City of London's go-to guys on things South African, Nomura's Peter Attard Montalto, was one of the first to express his horror at the firing of SA Finance Minister Nhlanhla Nene last Wednesday. His description of it being "profoundly negative" was borne out by global investors smashing the exchange rate, selling off SA bonds spiking their yields and knocking R290bn off the value of the 17 financial and property listings in the JSE's Top 40.
In reacting to last night's re-appointment of Nene's former boss Pravin Gordhan as Finance Minister, Montalto says: "You can't make this up. Markets should rally back very strongly but I would not expect a total re-tracement with a permanent loss of trust in leadership even if we are in a better place."
He says there will be even more focus on the questions foreign investors want answered. While welcoming Gordhan's return, Montalto asks: "But what on his views of SAA and nuclear? Unpredictability premia and the SAA and nuclear issues are still there. I think we also see a degree of permanent negative shock into growth and private sector investment."
And SA is only starting assess the damage: "The SA Reserve Bank will likely have to still do a large hike in January. After this 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."
From a broader perspective , Montalto is encouraged: "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.
"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".
"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. 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."