Wall Street bank Citi cuts exposure to SA bonds, rand over riots - as currency slumps

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  • The protests rattled financial markets in South Africa, with the rand dropping as much as 1.8% to 14.67 against the dollar.
  • The currency has lost nearly 3% since Friday close and wiped out almost all gains enjoyed since the start of 2021.
  • Yields on 10-year local government bonds broke above 9% for the first time since late June.


The rand dropped to a three-month low on Tuesday and local and hard currency bonds suffered as violent protests over economic hardship and inequality rippled across the country.

Crowds clashed with police and ransacked or set ablaze shopping malls, with dozens of people reported killed as grievances unleashed by the jailing of ex-president Jacob Zuma boiled over into the worst violence in years.

The protests rattled financial markets in South Africa, with the rand dropping as much as 1.8% to 14.67 against the dollar, its lowest level since mid-April. The currency has lost nearly 3% since Friday close and wiped out almost all gains enjoyed since the start of 2021, with currency's volatility gauges hitting multi-week highs.

Yields on 10-year local government bonds broke above 9% for the first time since late June. Longer-dated sovereign dollar-denominated bonds lost nearly 1 cent in the dollar while the cost of insuring exposure to the country's debt climbed to near-two month highs.

Wall Street bank Citi said it had cut its exposure to both bonds and FX on the back of the spreading violence.

"Following a couple of days of heightened social unrest in South Africa, it is time to take a step back and reflect on the causes and consequences of the current noise," said Citi's Luis Costa, predicting the events might have further to run and could have "important consequences" for the government under President Cyril Ramaphosa, without elaborating.

Initially sparked by last week's arrest of Zuma, the protests have widened into looting and an outpouring of general anger as the economy struggles to emerge from the damage wrought by Africa's worst COVID-19 epidemic and as unemployment rates have soared to a record high of 32.6%.

Equity markets also suffered with the all share index down 0.3%, sharply underperforming the MSCI global emerging market index which jumped 1%.

Nervous investors dumped property and retail stocks directly damaged by the looters, with the property index dropping 2.55% and Vukile Property Fund tumbling more than 7%.

SA Corporate said on Tuesday four out of 11 retail shopping centres that had been looted had suffered extensive damage.

Massmart, majority-owned by US Walmart, led the decliners, falling 7.53% as looters continued to ransack its Game and Makro stores, as well as warehouses.

"Economically sensitive sectors are taking a hit and with property companies, investors are trying to work out which ones are the most affected," Sanlam Private Wealth's Portfolio Manager Greg Katzenellenbogen said.

"We have a double whammy of the pandemic as well as now the unrest in the country."

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