Banking stocks experienced another cracker of a day after Deputy President Cyril Ramaphosa won the African National Congress’s leadership race. And while some expect the rally to extend to other sectors, others warn that the market may be getting ahead of itself.
Ramaphosa’s victory saw share trading in banks get off to a flying start on Tuesday. The banking index gained as much as 8.29% by early afternoon, eventually closing 8.08% higher at 9 583.42 points.
Among individual stocks, Barclays Africa gained 11.52% to R191.26 per share, FirstRand was up 9.05% to R65.31, Standard Bank closed 6.96% higher at R197.88 per share, Nedbank gained 5.73% to R253.75 per share and Capitec was up 4.90% at R1050.02. Investec, which derives a significant portion of its earnings offshore, withstood pressure from a strong rand to close 0.28% higher at R88.44 per share.
According to Petri Redelinghuys, founder of Herenya Capital, the rally in banking stocks is reflective of relief among local and international investors who – following Ramaphosa’s win – are again “happy” to take on risk in the country. He said banks are seen as a bellwether for the South African economy, largely as the financial services industry is the most developed and therefore most often used by offshore investors to gain South African investment exposure.
Prior to the results announcement the market had priced in an outright win for the Ramaphosa slate, which saw the index close 5.21% higher at 8 866.77 index points on Monday.
Redelinghuys said the rally is likely to continue and even extend to other sectors, provided Ramaphosa makes good on market expectations, as the entire domestic market lags behind its emerging market peers.
“Cyril Ramaphosa winning represents a changing of the guard and a potentially brighter future for South Africa as the hope that corruption ends and all those funds that go missing each year find their way into the real economy, creating jobs, building infrastructure etc. If all of that is true, then South African stocks have a long, long way to go before catching up to the rest of the world. In other words, we are trading at a fairly big discount in comparison to the rest of the world (and other emerging markets) and with what appears to be a shackle that has been lifted, our market should run pretty hard while it catches up/closes that valuation gap,” he told Moneyweb.
However, others see a reversal in the rand rally as a sign that the market may have been getting ahead of itself.
Prior to the results announcement, the market had priced in an outright win for the Ramaphosa slate, which sent the rand to a nine-month high of 12.52 against the dollar. The eventual composition of the ANC’s top 6, comprising three officials each from Ramaphosa and Nkosazana Dlamini-Zuma’s camp, raised concerns about unity within the structure and caused the rand to reverse some of its gains.
Bianca Botes, corporate treasury management at Peregrine Treasury Solutions, said a major concern was the appointment of Ace Magashule as the party’s secretary-general. “Some reports suggest that he has been captured, that there was irregular spending on his home, and that he poses a strong threat to the policies that Cyril Ramaphosa has in mind to drive the economy forward.
“However, Ramaphosa can always go the so-called ‘Zuma route’, not consulting or disregarding the opinions of the top six and acting on whatever decision he personally makes, but that would move to divide the ANC party even further.”
Her sentiments were echoed by John Ashbourne, Africa economist at Capital Economics, who said the election of politicians linked to President Jacob Zuma, who are facing serious allegations of corruption, may quash Ramaphosa’s anti-corruption campaign.
Ashbourne also stressed that Ramphosa’s path to presidency remains unclear, in that Zuma’s term as state president continues into 2019. “Given strained relations between the two men, a cohabitation between Zuma as president and Ramaphosa as party leader will be tense. Indeed, it is likely that Ramaphosa will attempt to push Zuma out of office sometime next year. This would both cement his authority and might help the ANC’s election prospects by drawing a line under Zuma’s scandal-plagued administration.”
Divisions within the leadership and party may, however, limit Ramaphosa’s authority.