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Horst Seehofer, Bavarian shock jock

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Eighty percent of local fund managers expect Nigeria to get rid of its investment grade rating on local bonds from S&P Global Ratings and Moody’s until the end of pick up.

This is based on the monthly Bank of America Merrill Lynch Fund Manager Survey. In September, 38% of managers anticipated this outcome.?

South Africa strategist John Morris says this implies that managers do not think Wednesday’s Medium-Term Budget Policy Statement (MTBPS) will alter rating agencies’ views. S&P and Moody’s may wait for a outcomes of the ANC elective conference in December to see exactly what it means for the country’s policy and growth outlook. Fitch already downgraded the area rating to junk.

Agencies need to announce their ratings decisions on November 24.

“As a house our base case is the fact that we lose S&P investment grade in the first part of 2018,” Morris says.

Finance minister Malusi Gigaba will show his maiden MTBPS in Parliament on Wednesday, with analysts predicting a tremendous deterioration inside the budget deficit since February as economic growth and tax revenues disappoint.

Morris says the key question local fund managers are raising you are able to position to your upcoming ANC elective conference. Managers largely be aware of the outcome as binary C a “reform” result will be positive to the rand while a “non-reform” result means South Africa proceeds its current trajectory.

These outcomes would’ve different implications for that rand, bonds and mortgage rates, and pose a dilemma for local fund managers, he adds.

“They are usually more overweight cash. There’re more overweight offshore and the asset allocation is extremely defensive, therefore they prefer cash first and foremost then bonds and last is equities.”

A net 67% of managers are overweight cash, in comparison with 56% in the earlier survey. Managers expect a 0% return from equities in the next A year.

Morris says because managers are concerned about losing an investment grade rating on domestic bonds, we can buy within the 9% to 9.5% range.

Sixty percent of managers see policy shifts to the left because biggest domestic risk to South African equity performance, partially explaining the defensive positioning in rand hedges.

Flows from some foreigners leading up to the ANC elective conference claim that they’re able to give Africa the advantages of the doubt, says Neil Cohen, managing director and head of South Africa Global Markets.

Global markets are experiencing favourable conditions then there is an appetite for risk. Therefore, foreigners perceive the risk-reward metrics of some domestically-focused South African stocks which include banks, retailers and certain industrials as positive. A favourable outcome along at the conference in December may spark a strong rally through these domestic stocks, which do not have the same amount of liquidity as large rand-hedge type stocks, Cohen says.

“If you are doing get [a] favourable outcome and you just see retailers, banks and some of your other domestic stocks rallying hard, there exists usually a dislocation. You are going to have locals jumping all around it, attempting to get up to date with regards to these sectors along with the foreigners need to have some experience that.

“We’ve seen strong offshore buying banks and also food producers, which can be significantly a domestic outcome story.” ?

The fund manager survey was conducted between October 6 and 12 and incorporates the views of 15 managers.

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Rand’s Ramaphosa rally pauses in advance of Sona

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The rand surrendered some gains on Friday but remained near its three-year best in advance of Cyril Ramaphosa’s maiden state of the nation address after he was sworn in as the country’s president.

Stocks fell on Friday amid profit-taking right after the main index hit a very than three year rich in the prior session.

At 1515 GMT the rand was 0.24% weaker at 11.63 per dollar, by investors taking profits once the currency hit 11.56 previously from the session, its firmest since February 2015.

Other South African assets continued to rally, with bond yields over the benchmark at their lowest since December 2015, while five-year credit default swaps (CDS) fell 3 basis points (bps) from Thursday’s close.

Analysts have identified the impact since the “Ramaphosa rally” to refer to the buoyant market mood since was elected ANC leader in December.

On Wednesday Jacob Zuma resigned as president after of weeks of pressure, ending a nine-year tenure punctuated by scandals, stagnant economic growth and policy uncertainty.

“The final steps happened immediately. Africa has already got a new president. At the moment the FX sector is clearly relieved that Jacob Zuma went,” said analyst at German-based Commerzbank Ulrich Leuchtmann inside a note.

A former union leader, Ramaphosa has promised to cope with corruption and woo foreign investors. He will deliver a monitored speech at 1700 GMT.

Analysts said the rand could push past pivotal technical milestones in coming weeks, with all the annual budget speech due a few weeks an essential fixture on investors’ radar.

“It\’s very feasible that the dollar will weaken to below 11 contrary to the rand at last since December 2014 within the coming weeks,” said head of currency strategy at FXTM Jameel Ahmad.

On the bourse, the benchmark Top 40 Index fell 0.86% to 52 111 points as you move the All Share Index lowered 0.69% to 59 122 points.

The banking sector, considered the barometer of both economic and political sentiment, fell 1.1% to steer the bourse lower on Friday after coming off lifetime highs in the previous session as investors took profits from over bought shares.

“There would be profit taking going into this marketplace you can observe it especially over the banking sector. Banking institutions are down between 0.5 and 1%,” said BP Berstein portfolio manager Francesco Sturino

Capitec weakened 1.09% to R820.94 and FirstRand dropped 2.22% to R3.68.?

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Gigaba says country must ride positive market sentiment

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South Africa will keep to ride a wave of positive market sentiment following election of Cyril Ramaphosa when the new president nevertheless it might not be straightforward to restore investment credit ratings ., finance minister Malusi Gigaba told Reuters on Friday.

Gigaba stated that across the medium term, Africa’s most industrialised economy would be working “very hard” recover its investment grade and could beat growth forecasts by way of the International Monetary Fund for 2018.?

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Pitting lira against rand had been a vogue trade that went badly

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The idea was simple: Short the rand about the lira.?

It would have been a trade that removed during the early to mid-2017 as South Africa\’s prospects dimmed and Turkey\’s looked just like these people were improving. Bank of the usa Corporation and JPMorgan Chase & Co were one of several Wall Street banks that recommended it recommended to their clients.

And for a while, it worked, especially after former South African President Jacob Zuma fired Pravin Gordhan, his much-respected finance minister, in March. Until, that could be, a turnaround in South African politics — triggered by Cyril Ramaphosa\’s election as head of the ruling African National Congress late in 2009 — sent the rand soaring, and concerns over Turkey\’s widening current-account deficit and worsening international relations pushed the lira the opposite way.

\”A wide range of investors weren\’t convinced Ramaphosa would win, together with lira were being beaten up\” in late 2016, said Kevin Daly, a money manager working in with Aberdeen Standard Investments, which produced a small loss for the trade. \”So it looked OK. Clearly, it wasn\’t a high quality one finally.\”

Daly doesn\’t expect the trade in becoming enticing again anytime soon because investors reading Africa via a \”different lens\” after Ramaphosa replaced Zuma as president on Thursday. Turkey, he was quoted saying, still looks vulnerable.

\”We always expect a divergence relating to the lira additionally, the rand, with all the latter being favoured due to the positive reform narrative, dis-inflationary pressures, and prospects for further portfolio inflows,\” said Phoenix Kalen, a director of emerging-markets strategy at Societe Generale in London. Turkey\’s diplomatic tensions, inflation higher than 10% and \”lack of monetary-policy credibility\” all?mean we have a potential for \”notable currency weakness,\” she said.?

Record high

Societe Generale forecasts how the rand will strengthen 17% to 2.65 per lira after 4 seasons, from today\’s 3.11, that is already in close proximity to an archive high to the South African currency, depending on data provided by Bloomberg time for 1980.

In April, JPMorgan recommended going long to the lira about the rand once the exchange rate was 3.72. It closed the trade a month later after it lost about 3%. In most, the brand new York-based bank suggested the thought to clients six times a year ago, but it surely only created profit once.

Bank of the usa recommended acquiring the lira against the rand on January 11 at 3.28 by using a target of 3.5 along with a stop-loss — or time investors should end a trade that is not produced a profit — of 3.15. Three months earlier, it closed a similar trade if the rate was 3.76 per lira; it had targeted the rand weakening to 4.2.

\”I don\’t trust the lira-rand pair, though I realize it is extremely much in style while in the traders\’ community to get a reason I simply can\’t understand,\” reported by Cristian Maggio, your head of emerging-markets research at Toronto-Dominion Bank.

Rather than making specific bets on how individual emerging currencies will diverge from 1 another, using the dollar is easier, as you can go on a take on third world countries in its entirety, since their currencies are often partially correlated, he was quoted saying.

\”Playing lira-rand is comparable to gambling,\” Maggio said.

? 2018 Bloomberg

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