20 Dec

Rand’s Ramaphosa Rally May Run Out of Steam

The South African rand’s surge lasted only as long as it took Cyril Ramaphosa to get himself to the top of the nation’s ruling party.

Now that he has, the currency’s world-beating rally is losing steam, and derivatives markets suggest it’s vulnerable to a renewed selloff.

The rand has climbed 13 percent against the dollar since hitting a one-year low on Nov. 13, as investors bet that Ramaphosa would defeat his rival, Nkosazana Dlamini-Zuma, to take over the African National Congress and put himself in prime position to succeed Jacob Zuma as president in 2019.

The nation’s stocks and bonds rose on Tuesday, the day after Ramaphosa’s win, and extended gains on Wednesday. But the rand traded sideways, suggesting investors want to see improvements to South Africa’s long-term prospects before increasing their exposure to an economy that’s barely growing and at risk of having its debt downgraded further into junk territory.

“The market has got ahead of itself as the victory of Ramaphosa does not spell the end of South Africa’s issues,” Guillaume Tresca, an emerging market strategist at Credit Agricole CIB in Paris, said Tuesday. “It’s facing a turbulent period in the near future, which will make its assets vulnerable. Moreover, the medium- to long-term outlook is still not positive for the rand.”

Tresca recommended shorting the currency against the dollar and targeting a 6.4 percent drop to 13.61. The rand retreated 0.2 percent to 12.7273 per dollar by 11:03 a.m. in Johannesburg.

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19 Dec

South African Stocks Rally as Ramaphosa Seen as Watershed

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 percent and was 1.5 percent higher as of 10:45 a.m. 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 percent 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.”

Source: https://www.bloomberg.com/news/articles/2017-12-19/south-african-stocks-rally-as-ramaphosa-seen-as-watershed

18 Dec

South African Rand Near 3-Month High on Ramaphosa Vote Optimism

South Africa’s rand fluctuated near a three-month high against the dollar and bond yields fell as traders bet Cyril Ramaphosa is poised to become the next leader of the ruling African National Congress.

Ramaphosa, one of the wealthiest black South Africans, has pledged to revive the struggling economy and stamp out corruption. His opponent, Nkosazana Dlamini-Zuma, has echoed President Jacob Zuma’s call for “radical economic transformation” to redistribute wealth to the black majority, a shift investors fear may blow out the budget deficit and spark rating downgrades.

The South African currency gained as much as 1.5 percent before trading 0.3 percent weaker at 13.1337 per dollar as of 10:04 a.m. in Johannesburg, according to data compiled by Bloomberg. Overnight implied volatility soared to a record 73 percent, suggesting traders are hedging for a large swing after the result, which may be announced Monday.

“Our base case of a win for Ramaphosa appears still to be on track, though there remains sufficient uncertainty in the process for caution to be exercised,” Zaakirah Ismail, a strategist at Standard Bank Group Ltd. in Johannesburg, wrote in a client note. “Volatility is also still at multi-year highs, implying that the currency is geared up for a sharp move after the winner is announced.”

Yields on benchmark government bonds due December 2026 dropped 14 basis points, the most since October, to 9.02 percent.

Long-Term Risks

The rand’s 4.1 percent gain over the past five days will probably not be sustained even in the event of a Ramaphosa victory as the country’s economic challenges won’t disappear, said Tsutomu Soma, general manager of the IFA department at SBI Securities in Tokyo.

“This isn’t likely to be a long-term strong rand trend,” Soma said. “Ramaphosa’s victory is seen as better than Nkosazana Dlamini-Zuma, but it will probably not improve the nation’s problems drastically, including fiscal positions. In the long run, the rand doesn’t look so attractive.”

Traders added bearish bets on the currency over the next three month, with the premium of options to sell the rand over those to buy it rising eight basis points to 2.83 percentage points in the past week.

Source: https://www.bloomberg.com/news/articles/2017-12-17/south-africa-s-rand-reaches-3-month-high-as-anc-prepares-to-vote

11 Dec

Kenya Opposition Delays Plan to Swear-In Leader as President

Kenya’s main opposition alliance postponed indefinitely plans to swear-in its leader as president of a so-called People’s Assembly, after the government warned such a step would amount to treason.

A ceremony that was to be held in the port city of Mombasa Dec. 12 was called off after “extensive internal consultations and engagement with a wide range of national and international interlocutors,” the National Super Alliance said in an emailed statement Sunday. The U.S. State Department last week urged the opposition to call off the event.

“We shall be announcing the new dates of both the swearing-in ceremony and the launch of the People’s Assembly as well as a more vigorous and prolonged resistance in the coming days,” the alliance said.

Nasa, as the opposition coalition is known, called for the People’s Assembly in October, after it rejected that month’s presidential-election rerun won by incumbent Uhuru Kenyatta. Alliance leader Raila Odinga, who refused to participate in the vote, rejected the outcome as a sham because the electoral authority failed to implement reforms his alliance demanded to ensure a fair vote.

Kenyan Attorney-General Githu Muigai warned on Dec. 7 that any attempt to form a People’s Assembly would constitute treason, a crime that carries the death penalty. U.S. acting Assistant Secretary of State for African Affairs Donald Yamamoto met Odinga last week to urge him to avoid “extra-constitutional actions” such as the planned inauguration ceremony, according to a statement by the U.S. Embassy in Nairobi.

The People’s Assembly’s main objective was to push for new elections next year, Nasa said last week. Failing that, the opposition said it would consider supporting the secession of parts of the country.

“We remain fully on course in pursuit of electoral justice,” the alliance said Sunday. “Our resistance of dictatorship is resolute and irreversible. We remind the NASA fraternity to maintain our civic and economic resistance. There are only two options — democracy or self-determination.”

Source: https://www.bloomberg.com/news/articles/2017-12-10/kenyan-opposition-delays-indefinitely-plans-to-swear-in-leader 

07 Dec

Investors Are Looking at Zimbabwe’s Budget: Post-Mugabe World

When Patrick Chinamasa marks the start of his second stint as Zimbabwe’s finance minister by presenting the budget on Thursday, investors will be looking for policy changes in addition to fiscal plans in the post-Robert Mugabe era.

While the government needs to rein in runaway spending, end cash shortages and recapitalize banks, signals that it plans to revise or repeal contentious policies such as forcing companies to transfer 51 percent stakes to black Zimbabweans could be a game-changer. It could lure back investors and smooth engagement with lenders like the International Monetary Fundand the World Bank.

Chinamasa, a lawyer, was reappointed last week by President Emmerson Mnangagwa, less than two months after former leader Mugabe moved him to another portfolio. Mugabe resigned two weeks ago after an army-led coup ended his 37-year rule. During his tenure, agricultural output collapsed due to forced repossessions of commercially productive, mainly white-owned farmland, Zimbabwe abandoned its currency in 2009 due to hyperinflation and the economy has halved in size since 2000.

A half-hearted attempt at solving expropriation, taming inflation and curbing the country’s massive import bills would be a continuation of Mugabe’s “insular budgetary policies,” said Charles Laurie, head of country risk at Bath, England-based Verisk Maplecroft. There will be “intense scrutiny” of Chinamasa’s plans by investors who expect “business-friendly budgetary policy,” though the focus would mostly be on the empowerment law.

“Repealing or gutting the law will be an essential step in signaling to foreign businesses that Zimbabwe is serious about fostering a viable business environment,” Laurie said. “It’s nearly impossible to imagine a revival of Western investor appetite should this politically motivated law remain on the books.”

Leading Efforts

Chinamasa has led efforts to revive the struggling economy and tap fresh credit. While Zimbabwe has paid $110 million of arrears to the IMF, it’s still saddled with $1.7 billion arrears to the World Bank and African Development Bank and external debt exceeds 70 percent of gross domestic product.

To read the full article, click here. 

07 Dec

Kenya Growth Outlook Cut by World Bank Over Credit, Spending

The World Bank lowered its economic growth forecasts for Kenya as delays in spending cuts, weak credit extension and political uncertainty curb expansion prospects.

East Africa’s biggest economy may grow 4.9 percent this year, the slowest pace since 2011, the Washington-based lender said in a report released Thursday. That compares with an April forecast of 5.5 percent, slower than last year’s gross domestic product expansion of 5.8 percent.

A government-imposed cap on commercial lending rates, a drought and two disputed elections have weighed on growth this year in the world’s largest black-tea exporter. The Treasury had to increase its budget-deficit forecast for the year through June and is looking to return to international debt markets for a possible $2 billion Eurobond sale to try to plug the fiscal gap.

“There is a need to consolidate the fiscal stance in order not to jeopardize Kenya’s hard-earned macroeconomic stability,” the World Bank said. Kenya must also “jump-start the recovery of credit growth to the private sector” and should “mitigate weather-related risks by climate-proofing agriculture” to support growth, it said.

The bank reduced the 2018 growth forecast to 5.5 percent from 5.8 percent in April, and cut the estimate for 2019 to 5.9 percent from 6.1 percent, it said.

‘Downside Risks’

Despite the downgraded forecasts, the World Bank’s forecasts may still be too bullish given the series of obstacles the economy faces including the rate caps and new accounting rules for banks, said Jared Osoro, director of research at the Kenya Bankers Association.

“There are a number of downside risks that have been identified, which if taken into consideration will put into question the bullish outlook,” he said.

Public debt has burgeoned to about 57 percent of GDP, from about 45 percent eight years earlier. The Treasury sees the budget deficit at 8.5 percent of GDP by June 30, unchanged from a year earlier. It previously said the gap would narrow to 6.8 percent.

 

To read the full article, click here.

07 Dec

It’s Only Been Two Months, But Angola Leader’s a Bond-Market Hit

He’s only led Angola for a couple of months, but bond investors already like what they’ve seen from Joao Lourenco.

Angola’s $1.5 billion of bonds due in 2025 have returned 8 percent since Lourenco was sworn in as president on Sept. 26, replacing Jose Eduardo dos Santos, who had ruled the OPEC member and former Portuguese colony since 1979. That’s a better performance than any other country in the Bloomberg Barclays Emerging Markets USD Sovereign Bond Index, which includes debt from more than 70 nations.

It’s not just down to oil prices rising about 5 percent in the period — the bonds of other major producers such as Mexico, Russia and Saudi Arabia have barely budged. Overall, Eurobonds issued by emerging-market governments returned an average of 0.3 percent.

Lourenco, 63, has moved fast to assert his authority in Angola, which relies on crude for about 90 percent of exports and ranks among the 15 most corrupt countries in the world, according to Transparency International. He has replaced the heads of the central bank, state oil company Sonangol and diamond firm Endiama, and started opening up the telecommunications sector to more competition.

The central bank, under new Governor Jose Massano, raised the main interest rate by 200 basis points to 18 percent last week as it looked to combat inflation of almost 30 percent. It may be a precursor to a weakening of the kwanza, according to Standard Bank Group Ltd., which says the currency is overvalued.

“While one could point to market ebullience due to elevated oil prices as a factor underpinning these bonds, the market might be getting more constructive on the policy outlook,” Dmitry Shishkin, the head of quantitative strategy at Standard Bank in London, said in a Nov. 28 note. The government has “hit some of the right notes, pointing to a desire to improve debt sustainability, cut some expenses, issue another Eurobond and continue with the reform of Sonangol.”

Source: https://www.bloomberg.com/news/articles/2017-12-06/it-s-only-2-months-but-angolan-leader-a-hit-with-bond-investors

05 Dec

Providing credit in Kenya: What we can learn from this microfinance company

For the vast majority of people living in sub-Saharan Africa, a traditional bank loan is simply not an option.

The region is home to the largest proportion of unbanked people (estimated to be over 60% at last count). But even those who do have access to bank credit face abnormally high loan rates, especially when it comes to the perceived-risky low-income groups.

In recent years there has been a trend of some African countries establishing interest rate ceilings – such as seen recently in Kenya. While the aim is to protect poorer citizens from being charged exorbitant amounts, it has actually further restricted access to credit – as traditional lenders are now imposing even more rigid guidelines for granting loans.

However, this also presents an opportunity for many microfinance institutions, which have popped up over the years to operate in a space deemed too risky for banks. One of these is Musoni Kenya, based in Nairobi. It was launched in 2010 and currently has over 40,000 clients with loans ranging between US$5 and $3,000. The company uses the mobile money platform M-Pesa for loan disbursement and repayments to reduce operational costs, and has a repayment rate of 97%.

At the Mastercard Foundation’s 2017 Symposium on Financial Inclusion, recently held in Accra, How we made it in Africa spoke to the firm’s CEO, Stanley Munyao, about the strategies it employs to reduce the risk of financing bottom-of-the-pyramid consumers.

Partnering to share resources and risk

“One of the biggest challenges for financial institutions, particularly microfinance institutions, is the cost of on-boarding customers and then maintaining those relationships, as well as the lack of proper data to help you make lending decisions,” said Munyao. However, he noted that partnerships offer a solution to these challenges.

The firm is working with various companies that have products and services aimed at low-income consumers. For example, Musoni Kenya has partnered with d.light, an off-grid solar product distributor, to provide a credit service to d.light clients. It has similar partnerships with agricultural companies (selling everything from fertiliser to bee hives) targeting small-scale farmers.

To read the full article, click here. 

04 Dec

Nigeria: No Cause for Alarm Over Terror Attack Alert – Govt

Abuja — The federal government yesterday calmed frayed nerves over the latest travel advisories by some Western countries alerting on impending attacks in Nigeria.

It assured Nigerians of adequate security measures to thwart any possible terror attack in the Federal Capital Territory (FCT) and the 36 states of the federation.

In a statement he issued yesterday, the Minister of Information and Culture, Alhaji Lai Mohammed, said there is no cause for alarm despite the latest travel advisories by some Western countries.

He said security agencies in the country have not let down their guard, despite the fact that there has been no terror attack in the FCT since the Buhari administration assumed office.

Mohammed stated: “We know that the terrorists, who have been massively degraded and put on the run, have been looking for soft targets to attack. This is the nature of terrorism all over the world, as can be seen in recent attacks in the UK, France and Egypt, among others.

“That is why the Nigerian security agencies have continued to be on the alert, even if their efforts have been largely unobtrusive so as not to disrupt the daily activities of the citizenry,” he said, adding: “Such efforts are routinely stepped up during religious festivals”.

The minister assured that the federal government will continue to take adequate measures to protect the lives and properties of citizens and non-citizens alike, even as the military remains unrelenting in ensuring that the terrorists neither regroup nor regain the capacity to carry out organized attacks.

He said the federal government’s sensitization campaign on security, with the punch line, “if you see something, say something”, would be stepped up on national radio and television.

Accordingly, he advised citizens to be security conscious and to report suspicious people and object to the security agencies. Govt Needs To Tighten Our Borders – Ladaja

Meanwhile, a presidential aspirant on the platform of the All Progressives Congress (APC), Ibrahim Abubakar Ladaja, has urged the federal government to tighten its borders and create an enabling environment to discourage migration.

To read the full article, click here.

04 Dec

Zimbabwe: Mugabe’s Nephew Quits Politics

Former Public Services, Labour and Social Welfare minister Patrick Zhuwao is quitting politics and does not intend to return home soon after former president Robert Mugabe was toppled last month.

Zhuwao, who is Mugabe’s nephew, said he had no regrets serving under the 93-year-old ruler who was forced to resign by the military on November 21. “I am proud to have served under President Robert Mugabe,” he said in an interview from South Africa at an undisclosed location.

“I was loyal to him during his tenure as president and I even today I am still loyal to him, much than loyalty I could have exhibited as his nephew,” Zhuwao added. “From a personal point of view, I am grateful to those who stood by Mugabe. “My political life existed for the duration of President Mugabe’s tenure.

“The options that were there politically for me was to become disloyal to him and that to me was not acceptable. “The decision by him to accept to be forced out was largely informed by his desire not to see the people of Zimbabwe go into a period of turbulence.

“My appeal to those that keep our faith, religious people, is for them to pray for those who are in power to be humane and not persecute people.” Zhuwao, a son of Mugabe’s late sister Sabina, said his safety was not guaranteed if he returned to Zimbabwe. He said workers at his farm outside Harare had been attacked during the army’s operation.

To read the full article, click here.