Written by Bhargav Acharya and Kopano Gombe
JOHANNESBURG (Reuters) – South African assets rose sharply on Monday after President Cyril Ramaphosa formed a long-awaited new government that included the former opposition leader and signaled continuity in fiscal policy by sticking by his former finance minister.
But some investors said the gains were likely to be short-lived as it would take time for the new government’s agenda and performance to become clear.
At 1125 GMT, the rand was trading at 18.09 against the dollar, 0.6% higher than its previous close.
Ramaphosa on Sunday announced the appointment of Democratic Alliance leader John Steenhuizen as agriculture minister in his 32-member cabinet. Besides the Democratic Alliance and the ANC, Ramaphosa made way for five other coalition parties in the government.
While the ANC retained control of the finance, defence and foreign affairs ministries, analysts saw the inclusion of the pro-business Democratic Alliance in other key portfolios as positive, while welcoming the fact that Finance Minister Enoch Godongwana remained in his post.
“The outcome is clearly a compromise, and both major players in the alliance had to accept less than they would have preferred,” said Markus Korhonen, senior associate for strategic intelligence at S-RM, referring to the ANC and the Democratic Alliance.
It remains unclear whether Ramaphosa’s unitary government will be able to address South Africa’s economic issues, but the new government was a “business-friendly” outcome, said J-A van der Linde, a senior economist at Oxford Economics.
Ramaphosa’s African National Congress lost its majority for the first time in three decades in elections on May 29 and formed a unity government with former rivals as a way to stay in power.
“It’s definitely been a sugar rush, I would say, because positivity is everywhere,” said Jason Schwartz, portfolio manager at Old Mutual Investment Group.
“We’ll need to see more information about the actual concrete changes we’ll see in policy and the implementation of those policies,” he said.
Korhonen said that the focus now will be on the new government’s legislative agenda.
“The formal legislative agenda would provide a good indication of what issues the government would work on, and what it might decide to prioritise given the potential difficulties in reaching agreement across the coalition,” he added.
On the domestic economic front, the PMI survey showed factory activity contracting again in June. June car sales figures are due later on Monday.
On the Johannesburg Stock Exchange, the Top 40 index rose 0.5% while the All Share Index rose 0.8%. The country’s benchmark 2030 government bonds strengthened, with the yield falling 10 basis points to 9.885%.