South Africa’s rand broke out of a long-term trading range on Wednesday amid record outflows from the country’s stock market and uncertainty around the composition of President Cyril Ramaphosa’s cabinet.
A delay in the announcement of the executive unnerved investors who are counting on Ramaphosa to implement reforms to revive a flagging economy. Foreigners sold a net R13.3 billion ($894 million) of South African equities on Tuesday, the most on record, as a re-balancing of the MSCI Emerging Market Index cut the weighting of South African stocks. The country relies on portfolio inflows to fund a persistent current-account deficit.
Rand tumbles to 5-month low on cabinet anxiety, risk aversion
Why Ramaphosa had to delay appointing next cabinet
The rand weakened for a third day, dropping as much as 1.1% before paring the decline to trade 0.9% down at 14.87 per dollar by 11 am in Johannesburg, heading for the lowest close since September. It broke above the upper limit of a range of 13.20 to 14.80 per dollar it’s held since October.
“The domestic risk premium has certainly increased over the last few days, deterring already low levels of global risk appetite, with the re-balancing of the MSCI EM index simply aggravating portfolio outflows,”said Nema Ramkhelawan-Bhana, a Johannesburg-based analyst at FirstRand Bank in a note to clients. “The market requires evidence of strong leadership to quell fears of policy paralysis. The onus lies firmly on the president to free the market of its anxiety to stem the tide of rand losses.”
Ramaphosa is widely expected to announce the members of his executive either today or Thursday after David Mabuza was sworn in as a lawmaker on Tuesday, opening the way for him to be reappointed as deputy president. The longer the delay, the more investors fret that Ramaphosa is facing opposition within his own party to his reform agenda.