Picture: REUTERS
Picture: REUTERS

The rand’s surge lasted only as long as it took Cyril Ramaphosa to get himself to the top of the nation’s governing party.

Now that he has reached the top, the currency’s rally is losing steam and derivatives markets suggest it is vulnerable to a renewed sell-off.

The rand has climbed 14% against the dollar since hitting a one-year low on November 13, as investors bet that Ramaphosa would defeat rival Nkosazana Dlamini-Zuma to take over the ANC and put himself in prime position to succeed Jacob Zuma as president in 2019.

The nation’s stocks and local bonds rose on Tuesday after Ramaphosa’s win and extended gains on Wednesday.

But the rand traded sideways, suggesting that investors want to see solid improvements to SA’s long-term prospects before increasing their exposure to an economy that is barely growing and at risk of having its debt downgraded further into junk territory. "The market has got ahead of itself as the victory of Ramaphosa does not spell the end of SA’s issues," Guillaume Tresca, an emerging market strategist at Credit Agricole CIB in Paris, said on Tuesday.

"It’s facing a turbulent period in the near future, which will make its assets vulnerable.

"Moreover, the medium-to-long-term outlook is still not positive for the rand."

The rand’s implied volatility has receded since Ramaphosa’s victory. However, its expected swings over the next month
are still the highest among 29 emerging currencies followed by Bloomberg.

That makes it a risky bet for carry traders, who borrow in low-yielding currencies to invest in higher-yielding ones, typically those of developing nations. Adjusted for that expected volatility, the rand’s implied returns are lower than those of some of its closest peers such as the Mexican peso, Russian ruble and Turkish lira.


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