The rand strengthened the most in almost six months against the dollar after South Africa’s antitrust authority approved Wal-Mart Stores Inc. (WMT)’s purchase of a controlling stake in Massmart Holdings Ltd. (MSM)
The currency of Africa’s biggest economy appreciated as much as 1.7 percent to 6.8249 per dollar, the strongest intraday level since May 11. It traded 1.6 percent stronger at 6.8335 by 4:50 p.m. in Johannesburg, the biggest gain on a closing basis since Dec. 2, and paring its drop this month to 4.3 percent. The rand advanced 0.7 percent to 9.8456 per euro.
The Competition Tribunal’s decision to approve the 16.5 billion-rand ($2.4 billion) transaction, on condition no jobs are cut for two years, came after labor unions and the South African government opposed the purchase, saying Wal-Mart’s entry would cause a surge in cheap imports, harming local manufacturers, suppliers and rivals. The acquisition will be South Africa’s biggest foreign direct investment this year.
“Sanity has prevailed,” Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Capital, a unit of South Africa’s fourth-biggest bank, said by phone. “It may encourage other foreign investors to look at South Africa as an investment destination. That is positive for the rand.”
The transaction may be currency-neutral as investors based outside South Africa hold 70 percent of the company’s shares, Massmart Chief Executive Officer Grant Pattison said after the offer was announced in November. Still, traders bought the rand on optimism the decision will be seen as a green light for future foreign investment, analysts said.
“The importance of the decision goes far beyond the possible flows that the deal would generate, into what it says about South Africa as an investment destination,” John Cairns and Nema Ramkhelawan, currency strategists at Rand Merchant Bank in Johannesburg, said in a research note before the decision was announced.
Earlier, the rand gained and bonds declined after the economy grew faster than economists’ expectations in the first quarter, prompting investors to add to bets that the central bank will increase borrowing costs this year.
Growth in Africa’s biggest economy accelerated to 4.8 percent from a revised 4.5 percent in the last three months of 2010, the Pretoria-based statistics office said in a statement today. The median estimate of 18 economists was for growth to slow to 4.2 percent. Stronger growth may boost investor demand for South African stocks and the currency needed to buy them.
Bonds Yields Rise
“The data bodes well for South Africa’s growth prospects, which is rand-positive,” Johan Botha, an analyst at Johannesburg-based Standard Bank Group Ltd., said in a research note. “The data poses upside risks to portfolio inflows, particularly into the South African equity market.”
The 6.75 percent securities due 2021 dropped 43 cents to 89.48 percent, raising the yield seven basis points, or 0.07 percentage point to 8.34 percent. The 13.5 percent notes due 2015 slipped 27 cents to 121.43 rand, boosting the yield six basis points to 7.54 percent.
“With the economy having grown at what seems an above- potential pace in the last two quarters, and with inflation gradually rising, the rationale for the current low real policy rates is increasingly fading,” Jean-Francois Mercier, an analyst at Citigroup Inc. in Johannesburg, wrote in a research note. “We therefore maintain our view that the Reserve Bank will soon begin to raise interest rates, most probably in September.”
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