Following a recent discussion with Absa Fund Managers, find below the latest on our minister of finance and the implications that could await us:
Tuesday morning’s announcement by the head of the National Prosecuting Authority (NPA), that Finance Minister Pravin Gordhan has been issued a formal summons to appear in court on the 2nd of November in relation to fraud, pushed the rand to its weakest level in more than three months. The unit sank by as much as 4% against the US dollar during the day. On the equities market the weaker rand lifted rand hedges and miners, helping reverse the JSE All Share’s losses from earlier in the day, to see it close 0.43% higher yesterday despite a 3.58% drop in the banking index.
Minister Gordhan, who has confirmed the receipt of the summons, says he will continue to cooperate fully in the execution of all legal requirements that are placed upon him.
James Turp from Absa Asset Management says” These charges are a new angle against the Minister, the timing of which are of great concern given the proximity to the Mid-Term Budget Policy Statement and bearing in mind the minister has been on an international PR roadshow ahead of this. We must consider what the end game is despite the seemingly weak nature of the charges and the general national sentiment.
The main risk is that Minister Gordhan is removed from his position until the case is resolved, whether in isolation or via the continually rumoured cabinet re-shuffle. This would be detrimental to asset prices and the sovereign rating. The fact that the Minister of Finance was excluded from the newly formed Task Team on higher education, given the fiscal importance of such a decision-making forum, could be indicative of the president’s tacit knowledge of where the strategy could be headed. We are however positive that there is depth of experience within the national treasury should the Minister be side-lined, however markets will respond negatively initially to the uncertainty.
Yields on bonds nevertheless are attractive here relative to global yields and in line with our recent quarterly view, and in the absence of new developments, over the medium term we would be buying into weakness. The capital risk however requires tactical active management and we remain cautiously short duration in line with our short term view and ahead of the other risk events over the quarter.”
During unexpected and turbulent times it is important to trust the skills and processes of your wealth manager. Our investment process remains adaptable to the ever-changing, turbulent movements in the financial markets and on-going research and risk management form an integral part in ensuring that we always act in the best interests of our clients and investors.