‘Rand strength not going to last’

JOHANNESBURG. – While the rand has enjoyed a recent rally on the back of game-changing local elections – when looking at the long-term trends, its future remains less certain. This is according to analysis from global research firm, Nomura, which says the rand’s recent “extraordinary strength” has been caused with little inflow. Nomura said that its previous long-term outlook for the currency – which pegged a 2016 close at R17 to the dollar – has not changed.

“We do not believe the current rally has serious domestic idiosyncratic drivers and investors are instead simply carry hunting,” said Nomura strategist for Africa, Peter Attard Montalto.

Looking at the zoomed-out trend-line of the rand’s performance since 2011, “things look surprisingly calm for most of it”, Attard Montalto said. “Marikana barely registers at this altitude, nor loadshedding. What we do see, however, is an acceleration of weakness in ZAR from August last year.”

“This long-run trend was broken by the first Japanese-led flash-crash at that time on August 24 2015 and things accelerated higher from there through ratings downgrades, ratings watches, a building sense of a low growth/no jobs growth narrative and problems mounting at parastatals,” the analyst said.

This was all before Nene-gate, which occurred on December 9, causing the USD/ZAR to rise to a peak on January 11, 2016. Nomura’s bleak projections for the rand are based on a set fundamentals in the South African economy, which remain unchanged.

High unemployment, zero growth, and views that the country faces a likely ratings downgrade in December still persist. “These still stand, even after the recent elections. We believe the positive long-run impact of these elections will take too long to affect growth and the vulnerability of the country – we think the status quo will last too long,” it said.

Previously, Nomura saw an election outcome where the ANC lost power in two metros as a mixed result for South Africa: on the positive side, it represented a shift in the political landscape that left President Jacob Zuma in a weaker position – seen as positive for investors.

However, on the negative side, the result has left major metros in hanging, with no clear winner. This will force coalitions between parties with contrasting views and policies, which could create a turbulent economic landscape, moving forward. – BusinessTech