South Africa-exposed stocks rally on Zuma resignation

Old Mutual, Anglo American and Mondi - which all have dual listings on the London Stock Exchange and the Johannesburg Securities Exchange - racked up healthy gains on Thursday after South Africa's Jacob Zuma bowed to pressure and resigned as President.

The South African rand rallied to its highest level since March 2015 following Zuma's resignation, after weeks of political wrangling, helping to boost companies with SA exposure.

Jameel Ahmad, global head of currency strategy and market research at FXTM, said the rand has now advanced by nearly 2.4% against the dollar this week, and has strengthened against all of the G10 currencies.

"While ongoing dollar weakness across the currency markets has supported gains in the rand, the fact that it has managed to also advance against the G10 currencies suggests that the confirmation of Zuma vacating his position has benefited overall investor sentiment towards South Africa.

"The Zuma presidency was masked by multiple layers of political risk; confirmation of Zuma stepping aside should help the rand continue to climb to levels not seen since the days of the Federal Reserve preparing the financial markets for the normalisation of US interest rate policies."

RBC Capital Markets said that from a sentiment perspective, the change of leadership should "vastly increase" interest in Anglo American.

"The emergence of a more pro-business ANC should allow for an improved operating environment. There is also a greater likelihood that Anglo, should it desire to, could make structural changes to its corporate structure that could streamline previous challenges like the capital controls on South African profits, etc."

The bank noted that Anglo, which historically has had a positive correlation with the South African rand, has outperformed the FTSE 350 mining index by 10% since Cyril Ramaphosa won the ANC leadership election, as the rand strengthened 14%.

Mondi, which manufactures and sells packaging and paper products in SA, was among the top risers on the FTSE 100, while Petra Diamonds, which operates four producing diamond mines there, also gained.

Neil Wilson, senior market analyst at ETX Capital, said investors were breathing a sigh of relief after nine years of scandal.

"Growth has stagnated badly under Zuma and there is hope that this will usher in a period of greater political stability and maybe some economic reforms that can get the drivers of growth going again.

"Ramaphosa is seen as good for business and will tackle corruption and mismanagement. Not that he won’t face challenges of course - there are deep economic and social problems and the ANC remains pretty divided. But whatever happens under the new president, I think markets and business assume it won’t be anything like as bad as Zuma."

At 1130 GMT, Old Mutual was up 3.8% to 248.50p, Anglo was up 2.5% to 1,736.20p and Mondi was 3.8% higher at 1,859.50p.