Rand Falls Most Among Emerging Markets as Manufacturing Shrinks

The rand weakened the most among emerging-market currencies against the dollar and South African bond yields rose after a manufacturing gauge unexpectedly fell, fueling concern of slowing growth in the continent’s biggest economy.

South Africa’s purchasing managers’ index last month dropped below the 50 level that indicates a contraction in manufacturing for the first time in six months as strikes hit output. Slowing growth may prevent the Reserve Bank from raising interest rates to curb inflation, which has been above the upper limit of the institution’s target range since July.

“The September PMI will raise fresh concerns at the Reserve Bank with regard to the domestic economic outlook,” Jana le Roux, an economist at ETM analytics, said in an e-mail. “The growth-versus-inflation dilemma is expected to continue and indicators are increasingly pointing to a stagflationary environment,” she said. Stagflation is marked by slow growth and inflation.

The rand depreciated 0.2 percent to 10.0519 per dollar as of 4:20 p.m. in Johannesburg, retreating from a 0.7 percent gain to post the biggest drop of 24 emerging markets monitored by Bloomberg. Yields on benchmark 10.5 percent bonds due December 2026 climbed four basis points, or 0.04 percentage point, to 8.01 percent.

The seasonally adjusted PMI fell to an eight-month low of 49.1 from 56.5 in August, Johannesburg-based Kagiso Tiso Holdings said. The median estimate of seven economists surveyed by Bloomberg was 54.

Manufacturers’ Loss

The central bank has left its key repurchase rate at 5 percent since a surprise 50 basis-point cut in July 2012 to help revive the economy, which is forecast to expand 2 percent this year, the slowest pace since a recession in 2009. Inflation accelerated to 6.4 percent in August. The bank targets a range of 3 percent to 6 percent.

Manufacturers including Toyota Motor Corp., Volkswagen AG and General Motors Co., face a loss in revenue of about 20 billion rand ($2 billion) after 30,000 workers held a 15-day strike in August to demand higher wages. Labor stoppages also disrupted output in the gold mining and construction industries in the past two months.

Earlier, the rand advanced as the dollar weakened against most major counterparts after U.S. lawmakers failed to agree on a spending plan for the new fiscal year. The deadlock threatens to hurt the economy as the Federal Reserve weighs tapering bond purchases that fueled demand for higher-yielding assets, including South African debt.

Growth Impact

“What is important to watch is the length of this shutdown and its potential impact on U.S. economic growth,” Societe Generale SA strategists led by London-based Benoit Anne said in a note to clients. “To the extent that it may affect Fed policy expectations, this may actually feed through as a risk-on signal for global emerging-market assets.”

The U.S. government began its first partial shutdown in 17 years, idling as many as 800,000 employees. The Fed said in May it may pare monetary stimulus if the economic recovery remains on track.

Foreign investors bought 14.1 billion rand of South African bonds in September, the most in a month this year, according to JSE Ltd. data.

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