Rand Erases Post-Brexit Loss as Inflows Stoke Stock Gains

  • Investors buy stocks in longest streak of inflows since 1999
  • South Africa vulnerable to reversal in risk appetite: Nedbank

South Africa’s rand was among the biggest gainers in emerging-market currencies as investors bought the nation’s bonds and shares on expectations developed-nation central banks will extend monetary stimulus.

The rand strengthened 0.6 percent to 14.3630 per dollar by 4:36 p.m. in Johannesburg, erasing losses incurred following the U.K. vote to leave the European Union and heading for the strongest level in 10 weeks. Against the euro, South Africa’s currency strengthened for a fourth day, gaining 0.3 percent to 15.9236, the strongest level on a closing basis since Dec. 8. Yields on benchmark government rand bonds due December 2026 climbed 5 basis points to 8.66 percent, after falling 10 points on Monday.

“It started with the Fed FOMC which was dovish and since then it’s been a global search for yield,” said Mohammed Nalla, head of strategic research at Nedbank in Johannesburg. “The other supportive news is that the Bank of England will likely cut rates this week and the Bank of Japan will likely provide even more stimulus. This will be supportive of the global carry trade and is why we are rallying strongly,” he said, referring to investors who borrow low-interest currencies to buy high-yielding assets.

Global equities are almost back to where they were before Brexit. Japanese Prime Minister Shinzo Abe said he would order ministers on Tuesday to begin compiling a stimulus package that one of his advisers has recommended should be 20 trillion yen ($193 billion) in the current fiscal year. The Bank of England is forecast to cut interest rates on Thursday and traders are betting there will be further monetary easing in the euro area this year.

South Africa’s benchmark stock index advanced a fourth day, adding 0.7 percent as Naspers Ltd., Anglo American Plc and SABMiller Plc led gains.

Longest Streak

Offshore investors were net buyers of South African bonds for the 17th day on Monday, the longest winning streak since at least 1998. That brings inflows this year to 48 billion rand ($3.4 billion), compared with 6 billion rand over a similar period last year. Foreigners also bought 3.3 billion rand of South African stocks, stretching inflows to 27 straight days, the most consecutive days of buying since a run of 30 days that ended in September 1999.

The South African currency has been the best performer in the carry trade this month out of 23 emerging-market currencies, returning 3 percent for investors who borrowed dollars to buy rand assets, according to data compiled by Bloomberg.

“South Africa has seen massive inflows along with other emerging markets,” Nedbank’s Nalla said. “The worry is that portfolio flows are volatile and can reverse as quickly as they came in. The more flow you attract, the more vulnerable you are to a reversal in the global risk appetite cycle.”

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