Rand Surges as Investors Raise Stakes on Ramaphosa to Lead ANC

(Bloomberg) -- South Africa’s rand surged the most in two years against the dollar, bond yields fell and bank stocks climbed to a record as traders bet Cyril Ramaphosa is poised to become the next leader of the ruling party.

“The market is assuming that Ramaphosa’s won,” said Nigel Rendell, a senior analyst at Medley Global Advisors LLC in London. “It’s being too cavalier. Even if Ramaphosa wins, he’s not the answer to all of South Africa’s problems.”

Ramaphosa, the nation’s deputy leader and one of its wealthiest black people, has pledged to revive the struggling economy and stamp out corruption. His opponent, Nkosazana Dlamini-Zuma, has echoed her former husband President Jacob Zuma’s call for “radical economic transformation” to redistribute wealth to the black majority, a shift investors fear may blow out the budget deficit and spark rating downgrades.

Announcement of the result was delayed on Monday by a recount of votes after a delegate supporting Dlamini-Zuma was said to have lodged an objection.

The South African currency rose as much as 4.2 percent before paring gains to trade 3.7 percent up at 12.6107 per dollar, the strongest since March 24 on a closing basis, as of 6:40 p.m. in Johannesburg. An index of bank shares rose 5.2 percent.

The best scenario from investors’ point of view would be a win for Ramaphosa, with Human Settlements Minister Lindiwe Sisulu becoming his deputy, Rendell said. In that case, the rand would probably appreciate further to 12.5 per dollar, Rendell said. If Dlamini-Zuma wins with David Mabuza, the premier of the eastern Mpumalanga province, as her deputy, the currency may fall to 16 in a week, he said.

Bank Shares

Yields on benchmark government bonds due December 2026 dropped 22 basis points, the most since March, to 8.94 percent. South Africa’s benchmark equities index advanced 0.5 percent as the stronger rand and higher bond prices boosted sentiment toward lenders. Shares in companies that benefit from a stronger rand fell, curbing the main gauge’s gains.

“The positive reaction of the rand in the last few days will filter through to some of the names on the market,” said Nolwandle Mthombeni, an analyst at Mergence Investment Managers in Cape Town. Lower bond yields are “very positive for the banks and give them instantaneous momentum,” she said.

The rand’s 7.1 percent gain since Friday will probably not be sustained even in the event of a Ramaphosa victory as the country’s economic challenges won’t disappear, said Tsutomu Soma, general manager of the IFA department at SBI Securities in Tokyo.

“This isn’t likely to be a long-term strong rand trend,” Soma said. “Ramaphosa’s victory is seen as better than Nkosazana Dlamini-Zuma, but it will probably not improve the nation’s problems drastically, including fiscal positions. In the long run, the rand doesn’t look so attractive.”

Traders added bearish bets on the currency over the next three months, with the premium of options to sell the rand over those to buy it rising more than 30 basis points to 3.18 percentage points.

“Our base case of a win for Ramaphosa appears still to be on track, though there remains sufficient uncertainty in the process for caution to be exercised,” Zaakirah Ismail, a strategist at Standard Bank Group Ltd. in Johannesburg, wrote in a client note. “Volatility is also still at multi-year highs, implying that the currency is geared up for a sharp move after the winner is announced.”

--With assistance from Robert Brand Lilian Karunungan Yumi Teso John Viljoen and Neo Khanyile

To contact the reporters on this story: Dana El Baltaji in Dubai at delbaltaji@bloomberg.net, Paul Wallace in Lagos at pwallace25@bloomberg.net.

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Robert Brand, John Viljoen

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