JOHANNESBURG – The rand weakened to a new record low on Friday, slumping more than 3% in a sell-off by investors after this week’s dismissal of the finance minister, while stocks fell, with banks taking the biggest hit.
President Jacob Zuma sacked Nhlanhla Nene late on Wednesday in favour of a relatively unknown lawmaker David van Rooyen, unnerving investors in an ailing economy whose ‘investment grade’ status is already at risk.
By 1025 GMT the rand had weakened 2.42% to 15.8500 per dollar, pulling slightly back from a slide to the psychologically crucial 16.00 level.
Yields on local and dollar denominated debt soared as the likelihood of a downgrade to junk spooked investors.
“Markets don’t like uncertainty,” Cratos Capital equity analyst Greg Davies said.
“A lot of the selling is from foreign investors who’s confidence on the South African government has been shaken.”
Credit agency Fitch downgraded South Africa last Friday, leaving the continent’s most sophisticated economy just one notch above “junk” status. They said on Thursday Nene’s firing “raised more negative than positive questions.”
The sacking of Nene, a veteran civil servant in the ministry who was keen to rein in government spending, has also sparked a sell-off in South African banks, which have dropped nearly 20% since Thursday.
The banking index dropped more than 10% in early deals before recouping some of the losses to trade 8.06% lower by afternoon as worries grew that South Africa sovereign credit rating would hit profits and drive bad debts among the nation’s bank.
Barclays Africa plummeted 12% to R116, FirstRand as lost 8% to R35.68 and Standard Bank fell 6.8% to R98.55.
A downgrade would jack up South Africa’s borrowing cost, which flows through to the banking system.
The blue-chip JSE Top-40 index dropped 0.9% to 43 843, while the broader All-share index was off 1.12% at 48 438 points by 1033 GMT.
The yield on the benchmark government bond due in 2026 has added nearly 200 basis points, or 2%, in the last two days to levels last seen during the 2009 recession.