South Africa Rand, the Worst Major Currency, to Slip 7.9%, Citigroup Says

The rand, the worst-performing major currency worldwide this year, may extend losses by as much as 7.9 percent from current levels over the next year as global growth concerns damp demand for riskier assets, Citigroup Inc. said.

South Africa’s currency may decline to 7.75 per dollar over the next six to 12 months, Citigroup analysts led by London- based Jeremy Hale wrote in a research note. Citigroup previously forecast the rand would weaken to 7.20. The currency of Africa’s biggest economy gained 1.1 percent to 7.1377 per dollar by 4:31 p.m. in Johannesburg, paring its loss this year to 7.1 percent, the only one of 16 major currencies monitored by Bloomberg to decline versus the greenback.

The rand pared a 31 percent advance since the beginning of 2009 as Europe’s worsening debt crisis prompted investors to exit riskier, emerging-market assets and on concern slowing global growth will reduce demand for the country’s commodity exports. South Africa’s budget shortfall and current-account deficit also put pressure on the rand, the analysts wrote.

“The rand has been hit particularly hard by the spike in global risk aversion,” they wrote. “Fundamental overvaluation and twin deficits haven’t helped.”

South Africa’s budget shortfall in the current financial year will be 5.3 percent of gross domestic product, the National Treasury estimated on Feb. 23. The current-account gap widened to 3.1 percent of GDP in the first quarter, from 1 percent the quarter before, and may swell to 4.2 percent for the year, the Treasury estimated.

Nationalization Concern

A debate sparked by Julius Malema, leader of the ruling African National Congress’ youth wing, about nationalization of mines and banks also soured investor sentiment towards the rand, while strikes for higher wages in industries ranging from mining and energy have damped growth prospects, the Citigroup analysts wrote.

“Pressure on the currency is likely to remain in the run up to the ANC policy conference next year”, where Malema’s nationalization proposals will be debated, the Citigroup analysts wrote. Flows into the nation’s bond and stock markets and foreign direct investments may “prevent a more severe sell- off in the rand,” they added.

Foreign investors have been net buyers of 56.3 billion rand ($7.8 billion) of South African bonds this year, offsetting 5.57 billion rand net sales of equities, according to JSE Ltd. data compiled by Bloomberg.

To contact the reporter on this story: Robert Brand in Cape Town Nef at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net