adminJohannesburg — The rand clawed back more ground against the dollar yesterday as the fading likelihood of a US rate increase next week boosted emerging markets. This has seen investors pile back into emerging markets that offer higher returns but carry more risk. Government bonds were also stronger in early trade, while the Top 40 futures index added 1.7 percent, an indication that the local bourse was set to open at least 759 points firmer.
The rand traded at R13.5710/$ by 0844hrs, a 1.1 percent gain over Tuesday’s close, after earlier reaching a session high of 13.5500. Government bonds were similarly firmer, and the yield for the benchmark instrument due in 2026 fell 6.5 basis points to 8.425 percent. Local assets have benefited in the last two trading days from expectations that the US Federal Reserve could push back the start of policy tightening to December and not next week as earlier anticipated.
The rand would however need to close firmer than R13.6500/$ yesterday to have a fair chance of pushing towards 13.4500 and 13.3000, Standard Bank trader Warrick Butler said.
“A lot will depend on global external events and those seem to have improved in terms of sentiment over the past couple of days,” Butler said. Meanwhile, a “panic” selloff of African currencies and fixed-income assets has made the rand a buy for the world’s biggest money manager.
The recent market turmoil represented a “dramatic overshoot” and means that the continent offers “some amazing investment opportunities”, Scott Thiel, the London-based deputy chief investment officer at BlackRock, said in a speech in Johannesburg on Monday.
The rand has weakened 13 percent this quarter amid falling commodity prices, a slowdown in China and the prospect of a Federal Reserve rate increase that would draw investment to the dollar.
The Fed rate rise, which may come as soon as this month, would have a “calming” effect on panicky markets, Thiel said. “We’re following the South African rand on the view that we’re not at an equilibrium, even taking into account the fall in energy prices,” Thiel said. “I would venture to say the day the Fed raises interest rates the South Africa rand will be stronger.”
The rand gained on Tuesday for the first time in four days, strengthening 0.7 percent to R13.8780 per dollar after slumping as much as 1.2 percent on Monday to more than R14 against the US currency. Yields on benchmark government rand bonds dropped three basis points from an 18-month high to 8.57 percent.
Yields in developed nations have hardly moved and are underpinned by their central banks, damping investor returns, Thiel said. That makes African fixed-income assets attractive, he said.
“We look at assets we think are not repressed and are also going to hit that more traditional 5 percent return target,” he said.
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