Picture: SIMON DAWSON/BLOOMBERG
Picture: SIMON DAWSON/BLOOMBERG

It’s hard to believe that financial markets are ending 2018 pretty much the same way they signed off in 2017.

This time last year, Cyril Ramaphosa had just pipped Nkosazana Dlamini-Zuma to the presidency of the ANC, to the relief of currency markets.

Just as a measure of the uncertainty of the time, on December 15 2017, days before Ramaphosa’s victory, the rand’s two-week implied volatility against the dollar jumped to 32%, the most among all major currencies tracked by Bloomberg and the wildest since the height of the global financial crisis almost a decade ago.

While Ramaphosa’s victory and the ensuing period of Ramaphoria — a misplaced perception that the change of leader would magically transform SA’s prospects — meant the rand recovered to trade at its strongest levels in almost three years, this was by no means the end of wild swings.

And who knows what drama local politics has in store ahead of the elections? Will Ramaphosa be more confident and decisive, or will he let the EFF drive the ANC into more dangerous populist territory?

Over the following months, a combination of local policy blunders and global events meant the currency would continue to behave erratically.

In the past year, it’s traded between R11.51/$ and R15.70/$ – a range of about 27%.  On Wednesday, its two-week implied volatility reached 16%, having climbed above 20% earlier in December, the most since September when emerging markets were in turmoil.

While only half the levels seen in the middle of the power struggle in Nasrec, these are still the wildest swings of any major currency and demonstrate the rand’s particular vulnerability to bouts of volatility globally, due to its status as one of the most heavily traded emerging-market currencies.

Members of the Reserve Bank’s monetary policy committee are probably looking at this with some degree of vindication.

When they decided to raise interest rates in November, one of the criticisms they faced was that it didn’t make sense for them to do this while the rand was relatively stable and oil prices had dropped markedly.

They insisted that their concern was not what the oil price or the rand were doing in October or November, but rather the outlook for inflation in the longer term. And in any case, they argued, volatility would return. And so it has come to pass.

It has been an interesting year for markets overall.

The S&P 500 is down about 5% this year. Other than a small drop of less than 1% in 2015, this will be the first since 2008 when the global financial crisis was heading towards its peak.

This is not a statistic one can immediately reconcile with reports of a booming US economy and historically low unemployment. This also comes in a year when US companies received a major tax cut from the Trump administration.

Lower stocks and trends in bond markets, where for example yields on five-year bonds dipped below those on notes that mature in two years, have given rise to concern that the US may well be headed for a recession.

Among our traditional trading partners, there is the drama that is the UK’s pending departure from the EU, which has made the pound even harder to predict than the rand. Headlines about the stockpiling of medicines to thousands of troops being on standby in the event of chaos caused by a no-deal Brexit just highlight how badly things can get between now and March 29.

The Financial Times reported that analysts were predicting that the pound could trade anywhere between $1.10 and $1.59 depending on how the process is managed. It should be no big shock if the rand gets caught up in all of that.

And who knows what drama local politics has in store ahead of the elections? Will Ramaphosa be more confident and decisive, or will he let the EFF drive the ANC into more dangerous populist territory? And Eskom? Will the politicians finally show some sense of urgency to fix the utility or will we be hostage to their electoral ambitions, meaning nothing gets done before the elections? Will the lights stay on until Ramaphosa gets his mandate?

And which emerging market will throw its peers off course this year? Russia, Turkey, Argentina?

Unless one was betting on more more volatility, only the brave will dare try to predict where the markets will take us in 2019, or the remainder of 2018 for that matter.