South Africa will pay dear price for ouster of finance minister

The decision taken by South Africa’s president to replace his finance minister Nhlanhla Nene will not be without its costs, analysts said.

“It was one of the worst events for an economy that has little-to-no ‘cushioning’,” Citi analysts Gina Schoeman, Adam Spielman, Funeka Beja, Johann Steyn and Charles Russell said.

It will most likely lead to a downgrade of the country’s debt to ‘junk’ and much tighter monetary policy - as the central bank acts to curb inflation risks.

The downside risks to the country’s economy in 2016 and 2017 now look “much stronger,” they said.

Should ratings agencies lower South African sovereign debt below investment grade then the sectors that should ‘outperform’ – putting in a better performance versus their respective benchmarks – are those that behave like ‘hedges’ against weakness in the rand.

Some of those were: South African gold stocks, Sasol and the shares of dual-listed companies like British American Tobacco, SAB, and Richmont.

The sector which were most exposed would be financials, retailers and local industrials, the broker said.