Investors comforted by continuity in key Ramaphosa cabinet picks

The relief among investors was clear to see as they assessed President Cyril Ramaphosa’s South African cabinet line up.

When it comes to the key jobs of managing finances and overseeing reform of the country’s bloated and faltering state-owned companies, it turns out that continuity is crucial in calming the markets. Ramaphosa retained finance minister Tito Mboweni and public enterprises minister Pravin Gordhan in their posts as he named a slimmed down executive on Wednesday evening.

Read: South Africa’s brains trust: a guide to Ramaphosa’s new cabinet

The rand rose 0.4% against the dollar by 11:50 am in Johannesburg Thursday, building on the advance it made immediately Ramaphosa read out his ministers’ names in Pretoria. South Africa’s main stock index climbed 1% as banking and financial shares made the most of the stronger local currency.

Read: Rand’s relief from cabinet risk proves short lived

Here are some views on the cabinet line-up:

Natalie Rivett, senior emerging-markets analyst at Informa Global Markets in London

“The market ultimately wanted to see some continuity with Mboweni and Gordhan retaining key positions, and a slimmed down cabinet. Ramaphosa has delivered in that respect. Attention will now be turning to economic reform. The market will want to see efforts being made to boost growth and shore up finances, and key will be how Eskom’s problems are tackled.” – Shireen Darmalingam, macro strategist at Standard Bank Group in Johannesburg

“Positively, the majority of this new cabinet is pro-CR (Cyril Ramaphosa). We now foresee the expected reforms imminently. Moody’s ratings agency believes that such reforms will stem a downgrade.” Cabinet should be rand-supportive. Standard Bank sees currency as undervalued and sees it strengthening to 13.40 per dollar in the second half of the year. There are, however, ongoing global risks, such as global trade, which might constrain rand gains. – Ryan Woods, head of trading, Independent Securities

The key positions remain in good hands. Despite pressure from South African graft ombudsman, Gordhan stays on, which is good news. Mboweni is left in charge of the purse strings, continuity of policy is important. Appointments of Ronald Lamola in justice ministry and Barbara Creecy in the environment portfolio “are inspired choices”. Negatives are appointments of David Mabuza, David Mohlobo, Lindiwe Zulu and a few others that are “apologists” for former President Jacob Zuma Cabinet still bloated, with far too many deputies. – Casparus Treurnicht, money manager at Gryphon Asset Management

A pro-Zuma legacy remains. One good thing is that there seem to be performance measures that will be implemented and monitored. “Let’s see how it goes. They all mean nothing unless you act upon them.” – Ronak Gopaldas, director of Signal Risk, an Africa focused risk management firm

Read: Is Ramaphosa in charge?

“Investors will take some comfort from the fact that there was continuity and technocratic competence retained in key economic positions, but ultimately the lack of ideological coherence within the African National Congress means that this is a compromise cabinet which will invariably lead to compromised outcomes. This makes it difficult to make the bold, decisive and rapid changes required to catalyze growth in the SA economy.” “Maintaining the clean-up squad, getting rid of obvious bad apples and trimming the size of the administration was what investors deemed satisfactory to clear the low hurdle rate the market had set.” – Business Unity South Africa

Lobby group said it welcomed the continuity in the core economic ministries, particularly in Mboweni’s finance portfolio. State-owned enterprises remain the greatest risk to public finances, with Eskom being the biggest concern. The resolution of the issues facing SOEs is crucial, as the crafting of industrial and trade policies. The country is at an economic cross-roads and is faced with an unemployment and inequality crisis, which has been characterised as a key threat to democratic stability.

© 2019 Bloomberg L.P