The rand weakened the most in more than two months as South Africa said local mines should be at least 30% owned by black people in an effort to redress economic imbalances caused by the apartheid system.
The currency fell as much as 2.1% against the dollar, the most since March 27, to be the biggest decliner among 31 major and emerging-market currencies tracked by Bloomberg. The rand was 2% lower at 12.8775 by 4:11 pm in Johannesburg. Local mining stocks slumped, while benchmark government bond yields rose by the most in almost a month.
The new rules will deter investment and weigh on the rand at a time when the country’s economy is in a recession, according to Nomura. The higher level of minimum black ownership would need to be achieved within 12 months, mineral resources minister Mosebenzi Zwane said Thursday, risking dilution of shareholdings as companies are forced to sell stakes.
“They’re negative reforms,” said Peter Attard Montalto, a London-based economist at Nomura International, which forecasts the rand at 15.5 per dollar by year-end. “This will set the industry back. It will be negative for growth and investment in the industry. It will ultimately lead to outflows, both in a portfolio sense and in terms of foreign direct investment.”
Most mining companies had reached a threshold of 26% set by the existing rules, but many black investors have since sold out. The Chamber of Mines, which represents mining companies in South Africa, said it would seek a court order to stop implementation of the new framework as it hadn’t been properly consulted.
Mining stocks were among the biggest decliners on the Johannesburg stock exchange. Sibanye Gold fell as much as 7.8%, Anglo American Plc tumbled 6%, the most intraday in almost four months, while AngloGold Ashanti dropped as much as 6.2%. The industrial metals index fell as much as 4.6% to an eight-month low as the mining gauge retreated 3.2%. The broader benchmark was 1.4% lower, it’s retreat cushioned by stocks that benefit from rand weakness.
South African bonds fell, with the yield on the benchmark government rand-denominated bond due December 2026 rising nine basis points to 8.48%, the biggest jump since May 18.
Glencore Plc, Impala Platinum Holdings, South32 and Kumba Iron Ore, which is majority owned by Anglo, would need to sell the biggest stakes if the new charter fails to give credit for previous deals, Avior Capital Markets said June 1. AngloGold and Sibanye, the country’s two biggest gold miners, may also be affected by the new rules.
The rand has gained this year, even against a backdrop of credit ratings downgrades from the three biggest ratings companies and political turmoil surrounding Jacob Zuma’s presidency, as investors sought higher yielding assets in emerging markets. Finance Minister Malusi Gigaba said Thursday that South Africa is likely to miss its 1.3% growth target this year and may have to curb spending.
The drop in share prices and the rand suggest investors have been too sanguine about prospects for South Africa, Nomura’s Montalto said.
“It shows an ignoring of the risks in this kind of environment. Investors have been ignoring some of the specifics,” he said. “This is waking people up to fact that the reform agenda is not quite what it seems.”
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