JOHANNESBURG Dec 18 The rand extended gains to
a more than two-month high on Tuesday after markets took the
re-election of President Jacob Zuma to head the African National
Congress as positive for investment.
The mood was compounded by the choice of businessman Cyril
Ramaphosa to be his deputy.
Re-election to the party post almost ensures Zuma another
five-year term as president of Africa's biggest economy and
investors were cheered by the certainty and perceived stability
created by the result.
The rand firmed to 8.5226 after the announcement.
By 1557 GMT it hit a session best of 8.5125 as local equities
closed at a new record high. Hopes for a resolution to the U.S.
fiscal cliff crisis also boosted markets.
Analysts said the choice of millionaire businessman and
former mining union leader Ramaphosa as deputy president would
make the ANC more business friendly. It was unlikely, however,
that there would be changes made to South Africa's rigid labour
Investors will watch the rest of the ANC meeting, which ends
on Thursday, for any changes to policy, such as mines
Deputy Finance Minister Nhlanhla Nene said on Monday the
government would not be "reckless" with implementing new mining
"The Nene comments yesterday were particularly worrying as
they seemed to be saying to the market and to investors there
will be some policy shifts on the mining issue," said Peter
Attard Montalto, an emerging market analyst for Nomura.
Nene accused ratings agencies of trying to influence the
outcome of the ANC conference after Moody's and Standard &
Poor's downgraded South Africa's ratings partly on expectations
of political instability.
Analysts expect that Fitch will cut South Africa's rating at
its next annual review in January.
Bonds firmed with the rand on the day, with yields dropping
2.5 basis points on the 2015 issue to 5.4 percent,
while the 2026 yield gave up 3 basis points to 7.315
Yields bounced from resistance barriers on Friday and
dealers said the rally had been quite hard and profits would be
taken from that.
Danske Bank said it had cut its weighting on South Africa
debt this month compared with November.
"We are pretty negative here, as both the deteriorating
external imbalances and the risks for further downgrades from
the rating agencies represent clear risks for a weaker rand,"
said Lars Christensen to clients on Tuesday, adding that South
Africa's currency was "fundamentally over-valued".
Offshore accounts dumped South African debt in favour of
equities last week, selling a net 381 million rand ($45 million)
in bonds and buying nearly 2.8 billion rand in shares, data from
the Johannesburg Stock Exchange showed.
Analysts said bond inflows for the month were sitting well
below average and equity inflows were outdoing debt for the fist
time in seven months.
"Bond flows are reversing despite local bonds remaining
resilient, which speaks to the manner in which foreigners are
taking cues from rising Treasury yields," ETM analysts said in a