South Africa

Rand tanks as hopes for ANC-DA coalition drop

South African assets were among the world’s worst performers on Wednesday after the African National Congress said it’s considering a government comprising several parties rather than a tie-up with the business-friendly Democratic Alliance.

The rand fell as much as 1.2% to 18.9462 per dollar as of 2:03 p.m. in Johannesburg, its weakest level since April 26, while the yield on 10-year notes rose nine basis points to 12.21% and sovereign dollar bonds sold off.

ANC officials have held exploratory talks with a number of opposition parties and “the best option” at this point looks to be a multi-party government of national unity, ANC spokeswoman Mahlengi Bhengu-Motsiri told reporters in Johannesburg.

The news comes as a blow to investors’ hopes that the ANC would form a coalition with the Democratic Alliance, a party that’s considered more business-friendly than some other opposition groups.

That expectation had fueled a brief rebound in South African assets at the start of the week but now a new coalition possibility is on the table, that would include the left-leaning Economic Freedom Fighters or the newly formed uMkhonto weSizwe party.

The presence of EFF and the MKP in any future coalition is seen as a concern, given they favour nationalizing the central bank and swathes of companies, as well as expropriating land without compensation.

“A government of national unity, which would include everyone, including EFF, would be seen as disappointing,” said Mamokete Lijane, global markets strategist at Standard Bank Corporate and Investment Banking.

“The ongoing uncertainty makes people uncomfortable.”

The ANC’s national working committee held talks on Wednesday morning to discuss the party’s options.

The body oversees the day-to-day running of the party, but any decisions will have to be taken by its larger national executive committee, which meets on Thursday.

South African dollar bonds also sold off, with yields on its $3 billion September 2049 issue quoted at 8.4%, eight basis points higher, according to data compiled by Bloomberg.

Bonds maturing in September 2047 and July 2044 also fell, posting some of the biggest losses in emerging markets.

The Johannesburg stock exchange was little changed but banks, insurance companies and retailers — sectors most exposed to local politics — lost ground, shedding between 1.6% and 2.1% on the day.


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