JOHANNESBURG (Reuters) - South African stocks index rose as much as 5 percent on Thursday, putting the main index on track for its biggest one-day gain in more than three years, on hopes the resignation of Jacob Zuma as president paves the way for new leaders to quicken the pace of economic growth.
The currency remained on the frontfoot, soaring to its firmest since early 2015 in the wake of Zuma’s exit. Analysts have however warned the rally faces serious obstacles ahead of a budget speech next Wednesday.
Zuma quit late on Wednesday, reluctantly heeding orders by the ruling African National Congress (ANC) to bring an end to a nine-year tenure punctuated by scandals, stagnant economic growth and policy uncertainty.
As of 1530 GMT, the blue chip Top-40 index surged 4 percent to 52,665 points, pulling back from a high of 53,072 achieved earlier but still on course for its biggest one-day gain since September 2015. The broader All-share index was up 3.72 percent at 59,533 points.
“The big news is that Zuma has now resigned and that has created a lot of euphoria ... South African incorporated, banks, retailers and the like are all looking sharply better as a result,” said Independent Securities’ trader Ryan Woods.
South African banks, considered the barometer of both economic and political sentiment, were a feature on the gainers’ list. The banking index surged 5.8 percent with Nedbank rising 5.37 percent and rival FirstRand up 6.4 percent.
Banks have largely borne the brunt of Zuma’s policy decisions that included the sacking of two respected finance ministers, Nhlanhla Nene and Pravin Gordhan. That, along with a weak economy, contributed to sovereign credit ratings downgrades to junk by S&P Global Ratings and Fitch.
In reaction to Zuma’s resignation, ratings agency Moody’s said it was focused on the new leadership’s response to economic challenges. S&P Global Ratings said the leadership change would not immediately affect the credit status.
Cyril Ramaphosa, former chairman of African biggest telecoms operator MTN Group, was sworn in as president on Thursday.
Ramaphosa, who has vowed to fight corruption and revitalise the economy, is seen by business leaders and investors as well placed to turn around the economy. South Africa’s GDP is estimated to grow by less than 1 percent this year.
Another key issue facing the 65-year-old is policy uncertainty in South Africa’s mining industry, an important economic engine which has been fighting in court with Zuma’s mines minister, Mosebenzi Zwane, over an increase in black ownership targets.
But some analysts said that the former union leader’s to-do list is way too long to make an immediate impact.
In the foreign exchange market the rand advanced to levels last seen in February 2015.
“The good gains the rand has made could be extended towards 11.55/dollar, and move towards 11.00/dollar baring any further credit rating downgrades for S.A. and a credit positive budget,” said Investec’s chief analyst Annabel Bishop in a note.
At 1515 GMT, the rand was at 11.6600 against the dollar, having reached a session-best of 11.6025 earlier percent stronger than its New York overnight close and at levels last seen in February 2015.
“The economy is coming off an extremely low base so there is good chance the optimism will be around for some time, but Ramaphosa has to very soon move from the honeymoon phase to the doing phase,” said chief executive of Canon Assets Management Adrian Saville.
Additional by Tanisha Heiberg, Mfuneko Toyana and Nqobile Dludla; Graphic by Ritvik Carvalho; Editing by Biju Dwarakanath and Alison Williams