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JPMorgan Says Ramaphosa No Magic Bullet for South Africa

JPMorgan Says Ramaphosa No Magic Bullet for South Africa

Investors cheering a possible Cyril Ramaphosa victory in South Africa’s ruling-party elections may be getting ahead of themselves.

The reformist agenda of Ramaphosa does have the potential to help accelerate economic recovery, avoid a credit-rating downgrade and strengthen the currency, according to money managers including Credit Agricole CIB and JPMorgan Chase & Co. Yet, markets aren’t factoring in the formidable challenges that could limit progress, they say.

The rand headed for its biggest two-day gain since March 2016 and the benchmark equity gauge rebounded from a three-week losing streak. That optimism could prove overdone if the traditionalist faction of the African National Congress challenges a Ramaphosa win or President Jacob Zuma’s supporters hinder the new leader’s program.

“The market is clearly pricing a Ramaphosa win at the moment and is getting ahead of itself,” says Guillaume Tresca, a Paris-based strategist at Credit Agricole. “First, Zuma could remain president until 2019, which means there is a risk of negative political noise. Second, there could be a balance of power to keep the unity of ANC, so it could be less positive than earlier thought.”

Other investors express similar views:

  • Sonja Keller, strategist at JPMorgan, Johannesburg:
    • “Should Ramaphosa be elected, financial markets probably would anticipate Moody’s holding off on a ratings downgrade in March next year. If the election results in a mixed slate with the top six new ANC leaders drawn from both the modernist and traditionalist camps, such expectations could be muted or indeed absent.”
  • Nigel Rendell, senior analyst at Medley Global Advisors, London:
    • “The market is assuming that he’s won, which is a brave because the race is really close. The market doesn’t always price things correctly, and in this case, it’s being too cavalier.”
    • “Even if Ramaphosa wins, he’s not the answer to all of South Africa’s problems. The government needs to reverse corruption that has impacted the nation over the past 10 years.”
  • Julian Rimmer, an emerging-markets trader at Investec Bank Plc, London:
    • “A Ramaphosa victory on a reformist agenda would definitely be positive. The very fact of his paying lip service to the right things would give investors confidence.”
    • But, “one has to be pragmatic and the best one can hope for is a positive trend in government and economic stewardship. The chances of South Africa looking like a first-class liberal market democracy 12 months from now, fully transparent with no whiff of corruption or wasteful spending is fanciful.”
  • Paul McNamara, fund manager at GAM U.K. Ltd., London:
    • “We’ll see the rand move fairly sharply weaker not least because it has strengthened quite a lot in the last few sessions on the view that Mr. Ramaphosa is going to win. I think the point is more that he is not Mrs Zuma rather than that he has some fantastic agenda.”
  • Simon Quijano-Evans, strategist at Legal & General Investment Management, London:
    • “Politicians are under pressure to change and they are getting a reaction not just form the local electorate, but from markets. It will be pressure from both those angles that will force change.”

— With assistance by Paul Wallace

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