Financial Markets

Who were the Zuma-gamble’s biggest winners?

Who were the winners?
Dollar down.jpg

There were some big financial winners in the game of chicken that President Jacob Zuma played with South Africa’s currency with his “surprise” huge cabinet reshuffle.

 The big winners were the money traders, those often little more than currency speculator, that had money, the stomach, foresight and/or inside information to short the rand ahead or the announcement.

This time around, unlike was the case in December 2015 when Nhlanhla Nene was removed as minister of finance, the surprise was not so big because trouble between the president and Pravin Gordhan, his deputy and the Treasury has been brewing for many months.

The suddenness, and the exact timing, of he Zuma moves to recall Gordhan recall from an investors’ road show and the announced whole-sale reshuffle, however, was not anticipated by most.

It might be regarded as ironical that, in the world of capitalism, the most brazen players of the “money game” were the big winners from the way Mr Zuma has been playing his power-politics cards. However, there might have been some intent in the hand he played to benefit some of those close to him.

Insiders in the know?

As one commentator has put it “…the cynics among us will still wonder how it is that the timing was so good for a small group.”

On the website of Intellidex, it’s CFA, Stuart Theobald, notes that there was a leap on Monday 27 March in both the June 2017 and December 2017 (rand/dollar) contracts.  

At approximately 10:30 the news broke of Gordhan’s recall from his road show by President Zuma. On the day, the rand’s value against the US dollar fell from R12.4334 to R13.1351 – delivering a paper profit of R73.8m on a layout of only R42m onn the morning's contracts, according to Theobald’s calculations.

He comes to the conclusion that the evidence presently in the public domain “is all circumstantial, but there is proper evidence out there,” and adds: “… if someone was front running the president’s announcement, someone knows about it.”

To boot, a trader with advance knowledge, who wanted to profit from it, would have been “better able to do it offshore, where it is much harder to see big movements in market exposures. You can also get much more leverage. Someone trading in this way out of, say, Dubai, would be almost impossible to detect.”

It just might also have happened, considering who were probably involved.

Nene-replay

However, maybe it might not be the last word we hear about that spike in currency transactions last Monday.

So-called Nenegate happen in December 2015, and then there were also rumours doing the rounds that some currency traders profited from prior knowledge. Then, in December last year, amaBhungane broke the news of how a whistle-blower reported to the Public Protector that members at a particular capital management company had prior knowledge of what was going to happen.

There were clear indications then of links to President Zuma’s friends, the Gupta family. Don’t be surprised by a repeat performance after the replacement of Mr Gordhan and others in the not too distant future.

Bad timing

While the removal of Minister Gordhan might have entailed good timing for some well-connected currency traders, and others, it was not so for the South African economy. To the contrary, it could hardly have come at a worse time.

Not only is the next round of credit ratings by international ratings agencies for South Africa starting this week, but the Zuma power politics manoeuvres came at a time when things were starting to look up for the rand and the economy in general.

The rand was at its best level since June 2015, inflation seemed under control, interest rates in stable territory and there were early indications of growth starting to pick-up.

For the ANC, as governing party, it could also hardly have come at a worse time. It is facing both the battle of electing a new leader in December and, at best 18 months later, a national general election.

The political uncertainty and -instability that has now become almost inevitable and the increased risk of social instability, could trigger a full-blown capital run on the country, with even more harm to the economy.

Even the Reserve Bank last week kept its benchmark repo rate unchanged on 7%, stating that, despite a better growth outlook for South Africa, the exchange rate has re-emerged as a risk to the inflation outlook.

While Mr. Zuma might have offered money-players a golden opportunity to make some handsome gains, it is ordinary people and, especially the poor that will be picking up the bill as their cost-of-living is set to dramatically increase.

 A final thought

As Theobald points out in his article, insider trading rules are currently focused on company shares, creating the sort of gap through which some the so-called Zuptas seem to have slipped now for the second time in 18 months.  

To expect that the new minister of finance, Malusi Gigaba, will take the initiative to rectify this situation, is probably to expect too much.

 

Also read: Zuma and Gordhan – who’s train and who’s chicken?

                  White monopoly capital: an excuse to avoid real problems

                  Corruption has become South Africa’s biggest danger

by Piet Coetzer

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