Rand, bank stocks free-fall in wake of Nene sacking

THE rand weakened to a new record low yesterday, slumping more than 3% in a sell-off by investors after this week’s dismissal of the finance minister, while banks led stocks lower.

President Jacob Zuma sacked Nhlanhla Nene late on Wednesday in favour of relatively unknown politician David van Rooyen, unnerving investors in an ailing economy whose “investment grade” status is already at risk.

The sacking of Nene, a veteran civil servant in the ministry who was keen to rein in government spending, has also sparked a sell-off in banks, which have dropped nearly 20% since Thursday. Many economists have questioned Van Rooyen’s ability to steady an economy being hammered by the collapse in prices of commodity exports that range from coal to gold, and raised concerns that public spending could spiral out of control.

“Markets don’t like uncertainty,” Cratos Capital equity analyst Greg Davies said. “Yo u have taken a minister that had a lot of credibility with the market without giving any explanation and put someone in his place that doesn’t seem to have any sort of experience like the previous minister.”

By late afternoon the rand was 2.58% lower against the dollar at 15.8900, edging back to the psychologically crucial 16.00 level after a brief recovery. The Reserve Bank said it would hold its monetary policy committee meeting next month as scheduled. Analysts had speculated that the bank might call an earlier meeting to increase interest rates to protect the rand. Last month the bank raised the benchmark lending rate for the second time this year to 6.25%.

Yields on local and dollar-denominated debt soared as the likelihood of a downgrade to junk spooked investors. Demand levels in local bond auctions were weak, re f l e c t i n g the subdued interest in local debt. On the bourse, the banking index dropped more than 10% in early deals before recouping some of the losses to trade 7.3% lower as worries grew that South Africa’s sovereign credit rating would hit profits and drive bad debts among the nation’s banks.

Credit ratings agency Fitch downgraded South Africa last Friday, leaving the country just one notch above “junk” status. The blue-chip JSE Top-40 index dropped 1.3% to 43,636, while the broader All-share index was off 1.66% at 48,171 points. The yield on the benchmark government bond due in 2026 has added nearly 200 basis points, or 2%, in the last two days to levels last seen during the 2009 recession.