South Africa’s currency and bond markets failed to join a global rally fueled by Federal Reserve Chair Jerome Powell’s signals for a slower pace of monetary tightening and bets for a relaxation in China’s Covid policy.
The rand was the worst performer in a basket of 25 developing-nation currencies, while South Africa’s 10-year sovereign yield jumped the most since May 2021.
The selloff was sparked by political turmoil as President Cyril Ramaphosa faced calls to resign due to potential breaches of the constitution over the theft of $580,000 stashed in furniture at a game farm he owns.
Emerging-market currencies and local-currency bonds have started December on a positive note after the biggest monthly advances since March 2016, rallies in which South African assets were a key contributor.
But the political crisis is threatening to undo investor interest in the country considered to be a bellwether for emerging-market risk in general.
It may now lose capital flows to faster-growing Asian nations or higher-yielding markets in Latin America.
“South Africa has fallen into a situation where there are concerns about political risk,” said Warrick Butler, the head of foreign-exchange trading at Standard Bank of South Africa.
“Exporters pull their offers when they think the rand is vulnerable and that’s exactly what happened now.”
The South African currency declined 1.1% to 17.3891 per dollar as of 8:54 a.m. London time, while the 10-year yield increased 35 basis points to 11.16%.
The main index for emerging-market currencies rose 0.7%.
The African National Congress’s National Executive Committee will on Thursday discuss the findings by an advisory panel that there may be a case for Ramaphosa’s impeachment.
The panel found the president may have violated sections of the constitution following the theft of the cash, hidden in a sofa at his farm.
“The probability of Ramaphosa lasting another full term looks very low to me now,” said Kieran Curtis, director of investment at abrdn in London.
Global stocks, bonds, and currencies surged, and the haven appeal of the US dollar waned after Powell offered guarded optimism that inflation in the world’s largest economy will slow and said a moderation in rate hikes may come as early as this month.
In China, the top official in charge of Covid rules softened her stance.
While the Ramaphosa affair prevented South Africa from following its emerging-market peers higher, the selloff was confined to currencies and bonds.
The benchmark equity gauge in Johannesburg climbed for a second day, trading at the highest level since April.
Even the bond losses were smaller than in Treasuries, helping to narrow the country risk premium as measured by JPMorgan Chase & Co. indexes.