Picture: REUTERS
Picture: REUTERS

The rand cheered local political developments on Wednesday, with bonds hovering at their strongest level in a year after a number of allegedly compromised ANC members opted not to participate in the new government.

The rand was the second-best performing emerging market currency on Wednesday, but analysts said the boost from local political developments was small, and investors are still waiting to see the size and composition of President Cyril Ramaphosa’s new cabinet.

The rand had gained during the week of the election two weeks ago, with markets betting that a comfortable win for the ANC would assist Ramaphosa in pushing his policies in a party struggling with internal divisions. The election outcome is also seen as having showed a reduced chance of the party turning to populist economic measures in order to shore up support.

The ANC eked out a majority in Gauteng, SA’s most economically important province, avoiding the possibility of a politically messy coalition.

As the JSE closed the rand was 0.25% firmer at R14.3582/$, 0.24% stronger at R16.0262/€ and 0.7% to R18.1607/£.

The benchmark R186 government bond had strengthened, with its yield falling six basis points to 8.405%.

Citigroup economist Gina Schoeman said the latest political developments are setting up an expectation within the market about the kind of cabinet Ramaphosa will appoint.

The new cabinet would have to tick certain boxes in order to reap positive sentiment for the rand including a reduction in size, a good finance minister and a cabinet that can execute Ramaphosa’s promised economic reforms, Schoeman said.

“We have not heard much out of the ANC, but positive steps to address issues of corruption and tainted individuals from Ramaphosa should see a stronger rand,” said Mercato Financial Services analyst Nico du Plessis.

The outlook for emerging market currencies, including the rand, remains constrained by global factors, and an escalation in the US-China trade war has capped post-election gains for the rand.

Although bonds were benefiting from political developments on Tuesday and Wednesday, these were somewhat small and local inflation data was also supporting the currency, said Sasfin Wealth fixed-income trader Alvin Chawasema.

“I think the political developments have had an impact on the positive sentiment in the local bond market, but I wouldn’t say their contribution is outsized,” said Chawasema.

gernetzkyk@businesslive.co.za ; mjoo@businesslive.co.za