South Africa’s recent change in president was greeted with euphoria by markets – at least initially – but it also served as a reminder to investors of the importance of keeping a clear head.
Cyril Ramaphosa’s appointment as president, following Jacob Zuma’s resignation, saw the rand rise to a three-year high. It saw credit default swaps fall and the Johannesburg Stock Exchange’s best one-week performance in more than two years. Financial stocks fared particularly well, on the back of the strong currency and renewed optimism.
Zuma has been replaced by an orthodox politician, untainted by corruption scandals, but a change of leadership, while a positive for South Africa, won’t necessarily fix things overnight.
Ramaphosa is very likely to make changes at several ministries – including finance, mineral resources, energy and public enterprises – and go after high-level corruption, with a particular scrutiny on those who had a close association to Zuma. This will greatly restore investor confidence.
However, tensions remain within the ANC, one side, more idealist and progressive in nature, the other nationalistic, transactional and careerist. While Zuma is no longer in power, his legacy remains and it is likely many of his supporters only shifted loyalty to protect their own political careers. These tensions have the potential to obstruct reform once the initial momentum of Zuma’s removal fades and Ramaphosa will have to manage competing factions within the party to maintain unity ahead of next year’s elections.
The long-term outlook for South Africa remains positive, buoyed by a rapidly expanding middle class with growing spending power. The short-term challenge has always been largely political, due to the poor governance of the Zuma administration. Our conviction in our stock selection in South Africa – this covers holdings in an internet and media group, a telecommunications provider, a large retailer and a pharmaceutical – is based on company fundamentals. We see nothing from the recent political and market machinations to lead us to any change of view.