South Africa’s benchmark stocks index had their biggest rally since March following the ascent of the business and investor-friendly Cyril Ramaphosa to leader of the ruling African National Congress, removing an overhang that had weighed on market sentiment.
The FTSE/JSE Africa All Share Index rose as much as 1.6% and was 1.5% higher as of 10:45am in Johannesburg. Household goods shares, banks, insurers, retailers and other domestically focused companies led gains on the gauge. The FTSE/JSE Africa Banks Index jumped 7.2% to a record, the FTSE/JSE Life Insurance Index climbed to the highest level since August 2015 and the FTSE/JSE Africa General Retailers Index advanced the most in two years.
“The removal of a degree of political uncertainty is a significant potential catalyst for relative recovery in South African performance and for a better-than-expected earnings outcome for the domestic earners in 2018,” Morgan Stanley analysts including Mary Curtis and Andrea Masia wrote in a note.
“Valuations still look cheap enough on an absolute and a relative basis for the JSE to continue to rally,” they said. “The best relative value shows up in South African banks and retailers, while multiples for South African industrials and the South African property sector look less appealing compared to cross-border peers.”
While Ramaphosa’s election may be a watershed for South Africa, considerable uncertainty remains, according to John Orford, portfolio manager at Old Mutual Investment Group.
“Firstly, because Cyril Ramaphosa will not be president of the country until Jacob Zuma steps down or until the next general election in 2019, his immediate ability to influence policy is uncertain,” Orford said. Moody’s Investors Service could also still downgrade South Africa’s credit ratings to junk, he said. “If this happens, it could trigger an outflow of capital from the country’s bond market, putting pressure on the rand and bond yields.”
© 2017 Bloomberg