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The rand reached R17.93/dlr at one point on Wednesday morning, a level last seen at the start of August last year, as markets cheered the inauguration of Ramaphosa and the ushering in of the GNU.
“Positive developments around the rand continue to reflect broad investor reprieve as well as increased prospects for a shift towards progressing reformist domestic economic policies,” RMB Markets Research said in a note on Wednesday.
“This includes the consolidation of key fiscal risk metrics and unlocking logistics and energy supply constraints after months of apprehension driven by speculation around the risks of a left-leaning ANC coalition alliance with either the EFF or the newly formed MK party.”
The rand has long been regarded as undervalued, with political risks linked to the 29 May elections reflected in its levels. Now that the political outlook has brightened with the GNU dawn, that risk has now been removed from investor radar screens, prompting the rally.
Bloomberg reported that the yield on South Africa’s local-currency bonds due in 2035 had fallen as low as 11.23%, the lowest closing level since April 2023. A bond’s price and yield have an inverse relationship.
And the JSE-All share index hit a record high of 81,364.39 in morning trade, signalling the possible return of foreign portfolio investors who have been net sellers of South African equities. In the first quarter of this year, non-residents’ holdings of domestic shares reached a new low of 27.6% according to Reserve Bank data.
Read more in Daily Maverick: Non-resident holdings of SA equities reach record low of 27.6% in Q1 — Reserve Bank
Increased foreign portfolio inflows into equities and bonds in turn help to underpin the rand’s rally in a cycle of renewed confidence in South Africa’s economic direction.
The policies that the GNU pursues will influence the direction that South African markets take for the rest of the year. But for now, GNUphoria has taken hold. DM