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South African assets tumble after state capture update

The rand and South African government bonds dropped sharply on Monday afternoon after a new report renewed focus on the country’s alleged corruption problems and criticised the central bank.

A report by the public protector’s office – South Africa’s anti-corruption watchdog – last November called for a criminal investigation into president Jacob Zuma’s links to the powerful Gupta business family, who have been accused of influencing political appointments to win lucrative state contracts.

Mr Zuma has denied any wrongdoing and called for a judicial review to overturn the report’s findings. However, public protector Busisiwe Mkhwebane – whose predecessor Thuli Madonsela was responsible for the “state capture” report – said on Monday that her office would oppose Mr Zuma’s efforts.

It also recommended changes to the mandate of the South African Reserve Bank to stop it from unfairly favouring large banks. The public prosecutors suggested the bank should change its mandate to include a commitment to promoting “balanced and sustainable economic growth” instead of focusing on inflation.

The rand, which was off less than 0.2 per cent against the dollar before Ms Mkhwebane’s press conference, was down 1.5 per cent at publication time, falling back below R13 per dollar.

Yields on the government’s benchmark 10-year local currency bonds, meanwhile, have risen 8.3 basis points (0.083 percentage points) for the day to 8.547 per cent, having been practically flat before the press conference.

Political controversies and infighting within the ruling African National Congress have exacerbated the impact of a weak domestic economy to take some of the lustre out of the country’s assets in recent months.

Although they have benefited from a general enthusiasm for high-yielding emerging market assets, analysts at ING noted this morning noted that uncertainty means “the rand looks to be trading on thin ice and could easily hand back its gains quickly”, encouraging investors to turn to more reliable markets.