FinMin exit hits S.Africa; EM stocks and FX enjoy strong 1Q

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LONDON (March 31): South African assets took a tumble on Friday after President Jacob Zuma fired Finance Minister Pravin Gordhan following days of speculation, replacing him with the relatively unknown head of home affairs Malusi Gigaba.

The rand dropped as much as 2.4% in a fifth straight session of losses before regaining some ground against the dollar. It is poised for a weekly loss of nearly 8% — its worst week in 15 months.

Local bonds were hit hard, with yields in the benchmark flirting with the 9% mark while Eurobond yields soared across the curve.

The sacking of Gordhan, seen as a steady and reliable hand in policymaking by investors, came as part of a wider cabinet reshuffle, the latest chapter exposing deepening rifts and divisions within the government of Africa's most industrialised economy.

The turmoil comes as South Africa is facing reviews by credit ratings agencies that could see it lose investment-grade status and make it more costly to borrow.

"There could be potential political ramifications of the cabinet reshuffle, as reflected by indications by opposition parties for a vote of no-confidence and impeachment motion," JPMorgan Chase's Sonja Keller wrote in a note to clients.

She added that she did not expect a substantial shift in the policy framework in the next 12-18 months, although "this recent rhetoric may lead ratings agencies and market participants to perceive a greater level of policy uncertainty near-term". JPMorgan Chase has cut its position in South African local bonds and currency to medium-weight from overweight, Keller said,

Poised for monthly losses, the rand was still on track to end the quarter 2% stronger as emerging market assets enjoyed a buoyant start to the year.

With the dollar on track for its worst quarter in a year, currencies elsewhere ended the week and month on a brighter note.

Russia's rouble, up 0.3% on the day, was on track for a monthly rise of 4.5% and a quarterly gain of nearly 10% — the strongest quarter since the start of 2012 — as the country emerges from a bruising recession and supported by stabilising oil prices.

Turkey's lira strengthened 0.3% as data showed the economy grew a greater-than-expected 2.9% in 2016, bouncing back in the final three months of the year after a contraction in the third quarter.

The lira is on track to eke out gains for a second month but not enough to make up for a dismal start to the year, and is poised for a fourth straight quarter of weakening.

Emerging stocks — on track for the third consecutive months of gain and their best quarter since the start of 2012 — fell 0.8% on the day, with bourses in Asia chalking up heavy losses.