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South Africa’s non-deal roadshow signals warning for investors

“Non-deal” investor roadshows are a funny old game. As the name suggests, they are not supposed to be about a pending bond issue. Instead, they are a way for far-flung finance ministers to press the flesh with big investors. (And yes, they almost always result in a new bond issue.)

So for South Africa’s president abruptly to order his internationally respected finance minister Pravin Gordhan home from his tour of London on Monday, without explanation, is a botched piece of political theatre.

We have been here several times before — Mr Gordhan’s position has long been seen as precarious — and again investors are left wondering whether he will finally get the boot in an echo of the rapid churn and burn of finance ministers at the end of 2015 that punished the rand severely. Nomura even has a term for it: PGxit.

One investor who listened to Mr Gordhan over grilled chicken and orange cake on Monday said he looked stoic. In good humour, even. But the markets were not so light-hearted. The rand dropped by about 5 per cent in two days — an extraordinary feat considering most other currencies have sprung higher against the dollar.

But while the buck was squashed by Donald Trump’s collision with political reality over the healthcare bill, hitting four-month lows, the US currency managed to leap from 12.30 rand or so to just over 13. South African bonds also hit the skids.

That is dramatic, for sure, but the drop in the rand is a mere flesh wound after a long rally from the start of last year. The South African currency may be at a 10-day low, but this is off an 18-month high after a rally that made it one of the best-performing currencies.

The issue is that the markets may be too sanguine. The fuss over shoddy stage direction may turn out to be a mere taster in president Jacob Zuma’s promise for an overarching ‘Radical Economic Transformation’. Investors like those chewing over petits fours this week have bought into the framework of falling inflation, a rising currency and a cherished investment-grade credit rating. If that goes out of the window, on the promise of, say, an exporting boom on the back of a weaker currency, investors will have much more to worry about than an awkward lunch.