BACK TO TOP

Anchor rand view: SA government faces difficult choices

06 November 2019

|

by Nolan Wapenaar, Chief Investment Officer

Figure 1: Rand vs US dollar gauge

Source: Anchor

It has been quite an adventurous week for the rand, with the disappointment around Public Enterprises Minister Pravin Gordhan’s special paper outlining the proposed future path of Eskom to the horror of Finance Minister Tito Mboweni’s Medium Term Budget Policy Statement (MTBPS) both putting the local currency under considerable pressure. We saw the currency weaken to R15.17/$1 in short order. However, a temporary stay of execution from Moody’s on Friday evening (1 November) seems to have allayed some of the market’s fears, thus allowing the currency to recover a little bit of lost ground. The rand is currently (5 November) trading at around R14.71/$1, which is within our fair band range.

South Africa’s (SA’s) fiscal position is dire and the message from our finance minister could not have been more clear – if we continue down this current path, then we are about a decade away from becoming another Zimbabwe. The SA government is now left with very few options to address the massive imbalance and all of the choices that need to be made will be unpopular with the ruling party, its alliance partners and the SA population in general. We no longer have the luxury of kicking the can down the road and any delay in making the necessary decisions will only result in the medicine being even more bitter when we eventually have to take it.

In many ways, SA is fortunate that global markets are in a forgiving mood. The risk-on trade is seeing all-time highs in US equity markets, while emerging market currencies and other risk assets are benefitting. This positive global sentiment has clearly also been giving the rand some support.

In considering the difficult path that lies ahead for SA, we have been shifting our portfolios to include a greater exposure to non-resident assets and we have also been increasing our US dollar exposure while the rand is within our fair range.

Figure 2: Actual ZAR/$ vs rand PPP model

Source: Bloomberg, Anchor

OUR LATEST NEWS AND RESEARCH

22

Nov '19
The world’s five wealthiest people
READ MORE

21

Nov '19
Home Depot results disappoint, and another outlook cut
READ MORE

20

Nov '19
The Fourth Industrial Revolution explained
READ MORE

INVESTING IN

YOUR NEEDS

Submit your details and we’ll give you a call back to assist and advise you on your investment.

CONTACT US

SUBSCRIBE TO OUR NEWSLETTERS

Subscribe to our newsletters to receive regular market commentary, research and updates from the Anchor team. Select between our Individual or Financial Advisor newsletters by selecting the relevant tab below.




Current Co-ordinates (Daily 7am)
Trading Ideas (Ad-hoc)
Investor Relations (Ad-hoc)
Aspirant (Ad-hoc)