Goldman Sachs sees significant scope for rand strength
The rand is undervalued and there’s scope for the currency to strengthen to as much as 11 per dollar, said Colin Coleman, head of sub-Saharan Africa at Goldman Sachs.
The currency fell to its weakest level in more than two years this month after data showing the economy entered a recession in the second quarter, raising the nation’s risk profile at a time when emerging-market assets are under pressure from a rising dollar and global trade tensions. It’s regained some lost ground since President Cyril Ramaphosa unveiled an economic plan last week to try and revive growth.
The rand traded at 14.1617 to the dollar by 6.12pm in Johannesburg on Friday. The currency has weakened about 17% since February, when it rallied to a three-year high after Ramaphosa succeeded Jacob Zuma as president.
“Anything weaker than 13 rand to the dollar we see as undervalued and we see scope up to 11 rand in terms of equilibrium of the rand,” Coleman said in an interview Friday with Bloomberg Television. “There is significant potential re-rating in a positive sense for the rand to go.”
Coleman said Ramaphosa’s package of proposals announced last week, which the president billed as a stimulus program, is a “stability and recovery plan” that shifts the budget emphasis away from consumption to more productive spending.
The Goldman Sachs executive also said the new administration was on the “right track″.
“We think that [next year's] elections will allow the president to effectively get a renewed mandate from the population which effectively will underpin the modernisation programme and structural reforms he wants to undertake,” Coleman said.