JPMorgan says Ramaphosa no magic bullet for South Africa
Investors cheering a possible Cyril Ramaphosa victory in South Africa’s ruling-party elections may be getting ahead of themselves.
Bloomberg reports that the reformist agenda of Ramaphosa does have the potential to help accelerate economic recovery, avoid a credit-rating downgrade and strengthen the currency, according to money managers including Credit Agricole CIB and JPMorgan Chase & Co. Yet, markets aren’t factoring in the formidable challenges that could limit progress, they say.
The rand headed for its biggest two-day gain since March 2016 and the benchmark equity gauge rebounded from a three-week losing streak. That optimism could prove overdone if the traditionalist faction of the African National Congress challenges a Ramaphosa win or President Jacob Zuma’s supporters hinder the new leader’s program.
“The market is clearly pricing a Ramaphosa win at the moment and is getting ahead of itself,” says Guillaume Tresca, a Paris-based strategist at Credit Agricole. “First, Zuma could remain president until 2019, which means there is a risk of negative political noise. Second, there could be a balance of power to keep the unity of ANC, so it could be less positive than earlier thought.”
Other investors express similar views:
Sonja Keller, strategist at JPMorgan, Johannesburg:
“Should Ramaphosa be elected, financial markets probably would anticipate Moody’s holding off on a ratings downgrade in March next year. If the election results in a mixed slate with the top six new ANC leaders drawn from both the modernist and traditionalist camps, such expectations could be muted or indeed absent.”
Nigel Rendell, senior analyst at Medley Global Advisors, London:
“The market is assuming that he’s won, which is a brave because the race is really close. The market doesn’t always price things correctly, and in this case, it’s being too cavalier.”
“Even if Ramaphosa wins, he’s not the answer to all of South Africa’s problems. The government needs to reverse corruption that has impacted the nation over the past 10 years.”
Julian Rimmer, an emerging-markets trader at Investec Bank Plc, London:
“A Ramaphosa victory on a reformist agenda would definitely be positive. The very fact of his paying lip service to the right things would give investors confidence.”
But, “one has to be pragmatic and the best one can hope for is a positive trend in government and economic stewardship. The chances of South Africa looking like a first-class liberal market democracy 12 months from now, fully transparent with no whiff of corruption or wasteful spending is fanciful.”
Paul McNamara, fund manager at GAM U.K. Ltd., London:
“We’ll see the rand move fairly sharply weaker not least because it has strengthened quite a lot in the last few sessions on the view that Mr. Ramaphosa is going to win. I think the point is more that he is not Mrs Zuma rather than that he has some fantastic agenda.”
Simon Quijano-Evans, strategist at Legal & General Investment Management, London:
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