Bank stocks took a hammering from Phala Phala saga

Banking sector stocks are believed to be the most sensitive to market volatility triggered by economic and political uncertainties, and that belief held true when it emerged that President Cyril Ramaphosa may have violated the constitution in the Phala Phala matter.

None of South Africa’s big six banks were spared when the Section 89 independent panel report was released last week.

Leading the losses on Thursday (1 December) was Absa, which saw its share price drop by 10.08%, followed by FirstRand (9.21%), Capitec (8.73%) and Nedbank (8.67%), Standard Bank (7.81%) and Investec (2.15%).

The rand at one point plunged over 4% the same day, trading close to R18.00 against the US dollar, which saw investors flee from the bank sector in a move that indicated “investors were going full risk-off”, as Casparus Treurnicht, research analyst and portfolio manager at Gryphon Asset Management, tells Moneyweb.

Ramaphosa was met with threats of impeachment following the release of the report by the panel that was tasked with probing whether he was involved in any form of wrongdoing in the matter that has come to be known as the ‘Farmgate’ scandal.

The saga relates to a 2020 robbery of R9.8 million in foreign currency on the president’s farm, which he earned from the sale of the game in 2019.

Question marks hang over the already corruption-riddled ANC, which now includes Ramaphosa’s questionable activities, says Treurnicht.

He adds that most of the sell-off was driven by local investors who grew nervous about who Ramaphosa’s successor would be – and that foreign investors bought in once the panic had waned.

“What this move signalled was that there are no favourable alternatives from a political perspective. The alternatives are all very weak and then we’re going to sit in a position where even worse options like the EFF [Economic Freedom Fighters] will be stepping it up with the election coming.”

By the end of trading on Wednesday this week (7 December), the banks had recovered some of their losses but were still down.

Since the release of the Phala Phala report, Capitec is down 5%, Absa 4%, Standard Bank 2%, Nedbank 3%, FirstRand 3%, and Investec 1%.

The recovery points to the fact that the moves of the past week were purely “sentimental” risk-off events, says Treurnicht, adding that the fundamental concerns remain.

Besides the political uncertainty posing a risk to markets, and even as banks report healthy earnings boosted by the SA Reserve Bank hiking interest rates, the sector has other risks to contend with.

“We’ve seen some dangerous signs on the credit side, especially in unsecured lending, where the consumer is borrowing quite aggressively in order to fund daily necessities.

“From that perspective, that’s definitely a warning sign,” says Treurnicht.

“When a recession kicks in, and simultaneously when interest rates go up, people lose their jobs – that inflection point we need to be careful of; that’s where the defaults are going to kick in.”

Listen to Fifi Peters and GIBS professor Adrian Saville discussing whether the Phala Phala findings have shaken investor confidence (or read the transcript here):