The return of veteran finance minister Pravin Gordhan will help to stabilize markets in South Africa, but the damage will be longer-lasting, according to David Kohl, Chief Currency Strategist and Head Economist Germany at Julius Baer.

Credibility of South African governance suffered seriously as little-known David van Rooyen had been appointed as finance minister a few days ago.

Financial markets in South Africa challenged the decision by a meltdown in stocks, bonds and the currency.

Four days after unceremoniously sacking Nhlanhla Nene as finance minister and replacing him with the largely unknown Van Rooyen, the South African president Jacob Zuma sacked Mr Van Rooyen and replaced him with former finance minister Pravin Gordhan in a belated attempt to correct an error of judgement.

Zuma said he had received “many representations to reconsider my decision” and after “serious consideration and reflection” he decided to reinstall Gordhan.

Gordhan was recalled from his job at the helm of the Ministry of Cooperative Governance and Traditional Affairs to help stem the bloodletting on local financial markets and to steady the National Treasury ship after the original announcement played havoc with the markets and the currency.

“This might help stabilizing financial markets in South Africa but the challenging environment remains. The damage for South African assets and the currency should however remain and justify extra risk premia going forward,” said Kohl.

Gary van Staden, Analyst at NKC African Economics, said that the return of Gordhan is likely to have some short-term benefit only in regard to local assets – stocks, bonds and the currency – that now sit in oversold positions.

“However, the switcheroo will do nothing to reassure investors and business of the long-term viability of South Africa under the current administration,” he said.

The former finance minister (who held office during 2009-14) will likely achieve some success in calming the collective nerve, but the longer-term consequences of presidential blundering and Zuma’s decision-making will leave its own negative legacy.

“The idea that the decisions announced somehow reflect a return to some sanity is off the mark: the decisions announced on Sunday reflect a government and a ruling party in turmoil, racked by divisions and schisms that paint a picture far from anything sane,” van Staden said.

“Far from facilitating anything but a short-term recovery for some over-sold assets, this past weekend’s decisions will merely confirm what many outside and inside of South Africa have been thinking for some time – that the current government is incompetent, irrational, ideologically challenged and losing control. In many respects the so-called corrective measures have the potential to make matters significantly worse,” he added.

Heinz Ruettimann, Strategy Research Analyst Emerging Markets, Julius Baer, said that the dismissal of the finance minister was not the reason for the MSCI South Africa and the rand to fall.

“Together with the rating agencies’ downgrades it was the tipping point. President Zuma came to power in 2009 and was re-elected in 2014. Under Zuma’s government South Africa has not taken the necessary steps to reform the country. Today, gross economic growth amounts to a lackluster 1% and the current account as well as the budget are in deficit with -4.1%,” he said.

Ruettimann urged to remain underweight South African equities: “Investors have lost confidence and are now taking flight by selling. The MSCI South Africa is too expensive. Year-over-year earnings growth is negative with - 18% in USD terms.”