South African police reportedly ordered Finance Minister Pravin Gordhan to its offices, fueling speculation that the Treasury chief may be replaced and upending the South African rand currency and country-specific exchange traded fund.
The iShares MSCI South Africa ETF (NYSEArca: EZA) plunged 2.9% Tuesday. South Africa has been one of the better performing emerging markets of 2016, rising 29.8% so far this year.
South African markets retreated Tuesday after Gordhan was given a “warning statement,” an official account issued to accused persons before they are charged with an offense and to warn them of their rights, reports Xola Potelwa for Bloomberg.
[related_stories]Former tax officials Ivan Pillay, Johann van Loggerenberg, Adrian Lackay and Andries van Rensburg have also been tagged and sent letters informing them of charges.
“It’s political turmoil and investors in the international market don’t like the fact that there’s a possibility that Pravin Gordhan could go as finance minister,” Wichard Cilliers, a trader at Treasuryone (Pty) Ltd., told Bloomberg. “They see him as a credible finance minister. That’s why there’s the initial selloff in the market and that’s why it’s very jittery.”
SEE MORE: Political Volatility Could Weigh on South Africa ETF
The rand currency declined as much as 2.9% to $13.9816, its weakest since August 3, after trading positive 1.1% earlier. The weakening rand also dragged on the iShares MSCI South Africa ETF, which is not hedged against currency risks.
Gordhan has been reportedly facing dismissal and arrest on espionage charges for setting the South African Revenue Service’s National Research Group to spy on political figures including President Jacob Zuma.
For more information on the South African market, visit our South Africa category.
iShares MSCI South Africa ETF