Good News! SA Rand Strengthens As Investors Turn To SA

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It’s good to know that the nation’s currency, the SA Rand is gaining strength at the time world economy is unstable, with most African countries trying to find their roots.

The rand is reported to be getting stronger each day as investors accross the world warm up to the country for business.

Though some of the investors as still skeptical about looking towards SA, report has it that some investors have remained upbeat about the country following the US Federal Reserve’s decision to hike rates last week.

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The SA rand was by Monday, trading at R12.68 to the US dollar. This according to financial report, gives a stronger position to the rand than the R12.72 high it reached on Friday (17 March) after the US Federal Reserve took a decision to hike rates softening the dollar and pushing investors into other markets.

According to Bloomberg’s analysis, sentiment around the rand and its performance over the past 12 months has improved significantly, out-performing over 30 markets.

Current levels mark the strongest position of the SA rand in 20 months, with the currency last hitting those levels in August 2015, subsequently getting battered by a brutal global economy and poor governance locally.

“Risk measures from volatility to credit-default swap prices are falling, analyst forecasts are at their least bearish in 18 months, and bond inflows are rising. But one measure shows traders aren’t quite convinced,” reported Robert Brand for Bloomberg.

“The median forecast of analysts in a Bloomberg survey predicts the rand at R13.70 per dollar by the end of the second quarter. While that may seem bearish, the forecast has dropped from R15.83 a year ago. The last time analysts saw the rand below 14 per dollar was in October 2015.”



The group noted that rand volatility was at 15-months low, the risk around a possible credit rating cut is getting lower, and that bond inflows are on an upswing as investors regain their appetite for the South African market.

This however, is not all positive because while investors look forward to a better performance, they are also preparing for the worst dicing between options to sell the rand or buy climbing by a percentage point.

This invariably means that there is an increase in investors hedging against the rand. Foreign investors are regaining their appetite for South African bonds after a selloff sparked by the Federal Reserve’s December rate increase.

With political turmoil subsiding and the immediate threat of a credit downgrade being averted, the cost of insuring South Africa’s debt against default has plunged to a 15-month low says Bloomberg,

“The country’s credit-default swaps are trading below the emerging-market average, showing investors are becoming less concerned about risks.”

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Meanwhile, some analyst seems not to agree with Bloomberg’s analysis of the state of the nation’s currency. Some analysts pointed out that the market is painting an overly positive narrative around South Africa with little data to back it up.

Research analysts at Nomura are of the view that SA’s ‘positive story’ in the markets is all wrong as it fails to take note of the incredibly volatile political situation – where the economy hangs under an axe of a couple of ill-placed moves by President Jacob Zuma – and the country has shown little in the way of growth, and bringing down unemployment.

In Nomura’s different view, SA rand would weaken again as the country’s politics plays out during the course of the year.