Rand Plunge Spurs Panic Buying of Futures on Stimulus End

The rand’s plunge may boost the value of currency futures traded on the Johannesburg Stock Exchange to a record as investors buy the contracts in “panic” amid an emerging-markets sell off, said a bourse official.

The rand, the worst performer against the dollar this year among 16 major currencies tracked by Bloomberg, lost 1.5 percent this month. It weakened 3 percent in the past four days and was 0.5 percent lower at 10.2356 per dollar by 3:02 p.m. in Johannesburg. The generic three-month rand contracts traded 3 percent higher at 10.6204 per dollar, signaling that investors expect further depreciation for the currency.

Trading rose to 36 billion rand ($3.5 billion) this month through June 19 and should “supercede” the 41.7 billion rand record set in May, Warren Geers, the JSE Ltd.’s general manager for bonds and financial derivatives, said in an interview today. The volumes were driven higher by the quarterly close-out on June 14, according to him.

“I think you see panic buying,” Geers said. “As soon as you see the 10-rand level, anyone who is importing becomes what I refer to as a panic buyer or a panic hedger.”

Investors dumped emerging-market assets at the fastest pace in two years, according to EPFR Global, as slowing economic growth and the prospect of less global economic stimulus sink stocks, bonds and currencies from India to Mexico.

Contracts Rise

Open interest, or outstanding contracts, for all currencies and all durations increased to 2.89 million by June 13, before the quarterly close-out, from 2.5 million contracts in May, according to JSE data. The number of contracts that traded jumped 22 percent to 3.1 million for this month through yesterday, compared with 4.37 million in May, the data showed.

The boost in trading volumes and values has also been supported by asset managers and hedge funds getting mandates to trade foreign exchange, Geers said.

“Recently, we have seen more asset managers playing in the currency futures,” he said. “We also now have hedge funds with proper mandates to trade foreign exchange.”