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It’s Opposite of `Ramaphoria’ as `Mabuza Effect’ Roils Rand

By Bloomberg 28 May 2019

As investors speculate who’s in and who’s out in President Cyril Ramaphosa’s cabinet, due to be announced this week, the market is clear on one contender.

When David Mabuza appeared to rule himself out of being re-appointed as deputy president last week, the rand gained. And now that he seems set to be re-appointed to the post, the currency is heading for its biggest one-day drop in more than two months.

Mabuza, 58, was linked to a succession of scandals while he served as premier of the eastern Mpumalanga province, though he denied the allegations and has never been charged. Still, his reappointment could set back Ramaphosa’s efforts to repair the reputational damage to the party after his predecessor Jacob Zuma’s scandal-marred nine-year rule.

“Investors worry that Ramaphosa will not be able to root out corruption from the top echelons of the government as promised, endangering his reform agenda,” said Per Hammarlund, the Stockholm-based chief emerging-market strategist at SEB AB. The rand could reverse declines if Mabuza shows commitment to reform measures, he said.

The rand dropped as much as 1.5% and traded 1.3% weaker at 14.6162 per dollar by 12:47 p.m. in Johannesburg, hitting its weakest level in almost months and leading emerging-market currency declines. Yields on benchmark 2026 government rand bonds rose four basis points to 8.43%.

“Buy the rumor and sell the fact is in full effect right now,” said Wichard Cilliers, a trader at TreasuryOne Ltd. in Johannesburg. “It’s putting the rand under pressure because investors thought there was a chance that the cabinet would be cleaner. But we need to see the official news about Mabuza, the real deal about what his role will be.”

It’s been a difficult May for developing-nation currencies in general due to a risk-off environment sparked by the uncertainty around a U.S.-China trade deal. Even so, the rand is underperforming its peers, weakening 2.2% month-to-date compared with the 1.4% drop for the MSCI EM Currency Index. Foreign investors have sold a net 6.1 billion rand ($417 million) of government rand bonds this month, according to JSE Ltd. data.

“It is indeed local factors and politics that seem to be the main culprits,” said Guillaume Tresca, a strategist at Credit Agricole in Paris. “Foreigners are still cautious and the latest developments on the appointment of the deputy president should not help foreign appetite.” DM

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