Markets the catalyst for political change
The past week has been one of the toughest I have endured, not only as someone involved with investment markets, but more so as a regular South African citizen. For years I have considered myself one of the positive minority. One of the guys who will seek the silver lining behind the dark cloud that is often SA Inc and reassure my family, friends and clients "that it will all be okay". However, that was significantly tested last week as the reckless President ignored all the common sense advice offered to him and fired his finance minister, only to be replaced by someone best described in golfing parlance as a hacker. All at a time when the South African economy is crawling along and the global financial community is sharpening the knives, ready to downgrade our already poorly rated bonds to 'junk status', alongside economic superpowers such as Suriname, Mongolia and Macedonia. Needless to say these countries don't have much appeal to investors, causing the cost of borrowing to escalate and generally putting ongoing pressure on the economy.
However, we may well reflect on this time as the moment when something so bad happened that something good can come out of it. Is this the moment when Zuma has overplayed his hand and the collective will of South Africans is united behind a common cause? Certainly the 150, 000+ signatures to the #zumamustfall petition indicate an awakening of the previously largely apathetic populous. Added to this are the organised marches and social media campaigns. This might just be the swinging of the pendulum.
Then the euphoria of Sunday night. After the Blitzbokke provided us with an oasis of joy amidst the maelstroom of SA politics, an announcement was made that Pravin Gordhan had returned from the wilderness of Co-operative Governance and Traditional Affairs to the hot seat of economic power. One can only imagine the crisis meetings behind the scenes. In a method that seems unique to South Africa, fellow politicians and big business maintained their game face while negotiating behind closed doors. On Sunday, at a time when the public lamented the lack of action, a senior banking exec was overheard to say that the correct trade was "long ZAR, long banks" - hardly imaginable on the previous Friday. This had to be an indication that big business had finally flexed its muscles.
The catalyst for this change has largely been the market. The currency, acting as the scoreboard for the government, very quickly indicated the state of the game. From an already weak R13.60/ USD, the currency rapidly weakened to almost R16/ USD with the bond and equity markets also blowing out to the tune of R500bn. Whilst we could petition JZ to "pay back the money" for Nkandla, there is nowhere this money can be recovered from, other than the market and the improving sentiment. On the scoreboard, the currency is now trading at R15/ USD - certainly an improvement, but still leaving the economy in a vulnerable position with inflationary pressure and potentially higher interest rates looming.
As one reads the financial and news columns, you are left with an overwhelming feeling of: "you can't make this stuff up". Will history reflect on this moment as the time when South Africa got its mojo back? Only time will tell.