The rand tumbled to the lowest in three weeks and bond yields rose after Fitch Ratings said violence at South African mines show problems that may weigh on the nation’s credit ratings.
South Africa’s currency declined as much as 1.3 percent to 8.4228 per dollar, the weakest level since Aug. 2. It traded 0.9 percent weaker at 8.4033 per dollar as of 4 p.m. in Johannesburg, the worst performance out of more than 20 emerging-market currencies monitored by Bloomberg. The rand has dropped 1 percent in the past five days, a second weekly decline. Yields on the nation’s 6.75 percent bonds due 2021 climbed nine basis point, or 0.09 percentage point, to 6.83 percent, the first increase this week.
Violent protests at a Lonmin Plc platinum mine which left 44 dead and sparked wage protests at other mines highlight structural problems that may weaken South Africa’s credit rating, Fitch said in a statement today. Fitch, Standard & Poor’s and Moody’s Investors Service have cut their outlook on South African credit to negative from stable since November on concern that increased pressure from the ruling party’s labor union allies will lead to increased government spending.
“Mining is our major export earner, so these issues are going to spell trouble for the rand,” Ion de Vleeschauwer, chief dealer at Johannesburg-based Bidvest Bank Ltd., South Africa’s biggest chain of money-changers, said by phone. “The ratings agencies will look at this and say ‘there is some risk here.’”
South Africa’s mining industry has cut 131,000 jobs since 2001 as output falls below 1994 levels, while wage costs, adjusted for inflation, have increased 47 percent over the past decade, said Fitch, which has a BBB+ assessment, the third-lowest investment-grade level, on South African credit.
Exports of metals and other commodities accounted for 45 percent of South Africa’s exports, according to government data.
“Fitch is taking the recent mine violence very seriously,” Esther Law, the London-based director of emerging-market strategy at Societe Generale SA, wrote in e-mailed comments. “Fitch’s concerns reinforce our underweight stance” for South African bonds relative to emerging-market peers.
The rand retreated earlier as commodities declined after China’s manufacturing industry shrank and a rise in U.S. jobless claims increased speculation that the Federal Reserve will stimulate economic growth.
The preliminary reading for a purchasing managers’ index for China released by HSBC Holdings Plc and Markit Economics fell to 47.8 in August, the 10th month below 50. Europe accounts for more than 20 percent of China’s exports. Minutes of the U.S. central bank’s latest policy meeting released Aug. 22 showed officials remain supportive of a third round of asset purchases under quantitative easing, or QE, as unemployment has been mired at more than 8 percent since 2009.
“The rand has been pushed weaker by poor global data and uncertainty over QE3,” John Cairns and Josina Solomons, currency strategists at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “PMI figures from China were unquestionably weak.”
The extra yield investors demand to hold South African dollar debt rather than U.S. Treasuries climbed three basis points today to 176, the highest in more than three weeks, according to JPMorgan Chase & Co.