Rand Extends Gains After South Africa Posts Record Trade Surplus

  • Currency rises for a third day as surplus beats forecasts
  • Foreign investors continue purchases of South African bonds

The rand extended its rally to a third day after South Africa posted the biggest trade surplus since at least 1996 as exports of precious metals and stones surged.

The South African currency strengthened 1.2 percent to 14.6117 to the dollar by 4:56 p.m. in Johannesburg, reversing an earlier decline of as much as 1.2 percent, after data from the South African Revenue Service showed that the trade surplus widened to 18.7 billion rand ($1.27 billion) in May from a revised deficit of 130 million rand in April. The median of 10 economist estimates compiled by Bloomberg was for a surplus of 4.1 billion rand.

“South Africa’s trade balance has generally improved over the past year, at least on a trend basis, helped by slowing import growth and some growth in selected export categories,” Kevin Lings, Johannesburg-based chief economist at Stanlib, said in an e-mailed note. “Unfortunately, the slowdown in imports growth largely reflects the slowdown in South Africa’s growth rate, rather than an improvement in import substitution.”

The trade pattern revealed in May is expected to continue for the rest of this year and into early 2017, which should help narrow South Africa’s current account deficit and support the rand, Lings said.

Analysts earlier said the rand may extend its best monthly rally since March as South Africa’s approval of Anheuser-Busch InBev NV’s takeover of SABMiller Plc triggers foreign-exchange inflows and international investors continue to buy government debt. The Competition Tribunal on Thursday approved the 77 billion-pound ($104 billion) beer deal with conditions. Foreign investors were net buyers of South African bonds for a ninth day Wednesday, the longest streak since April last year.

“When the deal was first announced in October last year, we mentioned potential inflows of 225 billion rand off the back of the deal, as around 15 percent of SABMiller shareholders are local investors,” Informa Global Markets Senior Emerging Markets Analyst Christopher Shiells said in a note from London. “But this could also be as small as 6.3 billion rand. The exact amount depends on who accepts cash offers vs cash for stock offer and how many passive foreign investors decide to reinvest in the JSE.”

Most investors will probably opt for the full cash offer, as the partial share choice carries a 5 percent discount and lock-up terms, Peter Attard Montalto, senior emerging-markets strategist at Nomura, said in November. If all South African residents, including state-run money manager the Public Investment Corporation select the full-cash offer there would be $5.3 billion in inflows. If all resident and non-resident holders decide on the full-cash offer in rand, total flows would be $18.7 billion, he said.

Foreign investors bought a net 1.8 billion rand of South African bonds Wednesday. Yields on the benchmark government bond due 2026 rose 7 basis points to 8.84 percent, climbing for the first time in three days and bringing the decline this month to 56 basis points, the best performance since January. Foreigners bought a net 2.4 billion rand of stocks for a 19th day of inflows, the longest sequence of purchases since September 2009. The benchmark FTSE/JSE All Share Index advanced 0.7 percent in a third day of gains.

The rand has strengthened 7.4 percent against the dollar this month, extending the gain in the quarter to 1 percent. The currency is up 5.8 percent this year.

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