Authors: Bhargav Acharya and Kopano Gumbi
JOHANNESBURG (Reuters) – South African assets gave up some gains on Monday as initial optimism shown by markets faded a day after President Cyril Ramaphosa formed a modern Cabinet.
Some investors have previously said the gains are likely to be short-lived as it will take time to explain the modern government’s agenda and performance.
At 1530 GMT, the rand was trading at 18.29 against the dollar, some 0.5% weaker than its previous close. The rand had jumped more than 1% earlier in the day.
Ramaphosa named Democratic Alliance (DA) leader John Steenhuisen as agriculture minister in his 32-member cabinet on Sunday. In addition to DA and the African National Congress (ANC), Ramaphosa made room for five other coalition parties in cabinet.
While the ANC retained control of the finance, defence and foreign affairs ministries, analysts hailed the inclusion of the pro-business DA in other key ministries as a positive, and welcomed the fact that Finance Minister Enoch Godongwana remained in his post.
“The result is clearly a compromise and both main players in the coalition had to accept less than they would have liked,” said Markus Korhonen, senior associate in strategic intelligence at S-RM, referring to the ANC and DA.
Jee-A van der Linde (NYSE), a senior economist at Oxford Economics, said it was an open question whether Ramaphosa’s national unity government would be able to address South Africa’s economic problems, but the modern cabinet was a “business-friendly” outcome.
Ramaphosa’s ANC lost its majority for the first time in three decades in the May 29 elections and formed a unity government with former rivals to stay in power.
Jason Swartz, a portfolio manager at Old Mutual Investment Group, previously attributed the market gains to a “slight sugar rush.”
“We’re going to need to get a little bit more information about the real, measurable changes that we’re going to make in policy and the implementation of those policies,” he said.
Korhonen said that now the attention will be focused on the legislative program of the modern government.
“A formal legislative programme would provide a good indication of what the government intends to achieve and what issues it might decide to deprioritise, given the potential difficulties in reaching agreement across the coalition,” he added.
On the domestic economic front, the Purchasing Managers’ Index survey showed that factory activity fell again in June. Vehicle sales data showed a decline in June.
On the Johannesburg Stock Exchange, the Top-40 index closed about 0.2% weaker. The country’s benchmark 2030 government bond rose, with the yield falling 3 basis points to 9.955%.
