Rand’s plunge makes SA a buy for some

Johannesburg - A slump sparked by concern that Finance Minister Pravin Gordhan’s job is on the line has made South African assets a buy, according to Standard Chartered and Societe Generale.

For Standard Chartered, which has been looking for opportunities to build long rand positions, “this week’s political noise is that opportunity.” South Africa’s weak economic outlook is likely to see the central bank leave interest rates unchanged until the second quarter of 2018. With inflation falling, real rates will stay strong and help attract inflows into the nation’s bonds, the lender said.

“For the currency this is a constructive local medium-term backdrop at a time of supportive global conditions,” Geoffrey Kendrick, emerging-market currency and global macro strategist at Standard Chartered in London, said in an e-mailed note. “We therefore recommend a tactical short dollar-rand trade.”

The rand slumped as much as 4.1 percent on Tuesday after Gordhan was summoned to appear in court on fraud charges, which he described as politically motivated. It was the latest twist in a saga that began in December when President Jacob Zuma fired then Finance Minister Nhlanhla Nene and replaced him with a little-known lawmaker. Zuma appointed Gordhan to the post four days later, giving in to pressure from the ruling African National Congress and business leaders, and has been at odds with the finance minister since then.

The rand was trading 0.8 percent weaker at 14.3410 to the dollar by 12:31 p.m. in Johannesburg, after gaining 1 percent on Wednesday after the head of the National Prosecuting Authority said he was willing to review the decision to prosecute Gordhan. Yields on benchmark government bonds due December 2026 were little changed at 8.91 percent after soaring 24 basis points on Tuesday.

That risk and the potential ousting of Gordhan are “are largely discounted by the market and South African bonds trade cheap to fair value,” Regis Chatellier, a London-based emerging-market strategist at Societe Generale, said in a note on Thursday. SocGen has upgraded South African bonds to “slight overweight,” he said.

BLOOMBERG