Rand Gains for Fourth Week as Johannesburg Stocks Riseby
Currency posts a month of advances against pound, euro
Global investors continue to seek yields in emerging markets
The rand strengthened for a fourth week against the dollar as investors seeking higher yields piled into South African bonds and stocks and data showed the continent’s biggest economy may avoid a recession this year.
The rand was also set for a fourth weekly advance against Britain’s pound and poised for the biggest gain against sterling since the first week of July. South Africa’s currency is heading for its fourth weekly gain against the euro and is the best performer against the dollar among emerging markets this week, behind the Colombian and Mexican pesos.
The U.K. vote to quit the European Union has bolstered expectations that the U.S. Federal Reserve will delay raising interest rates, as policy makers globally try to stem the fallout from Britain’s decision. A gauge of emerging-market currencies headed for its third week of advances as dovish central bank policy from Japan to the Bank of England encourages investors to look toward riskier but higher-yielding emerging markets such as South Africa.
Recent rand gains “were primarily driven by global factors and therefore its fortunes are tied to those factors,” Isaah Mhlanga, economist at Rand Merchant Bank, said in a note Friday. “Top among these factors is the timing of the US Fed rate hike, which the market has priced out to 2017.”
More optimistic sentiment toward the South African economy is also supporting the rand. Manufacturing production in June was the highest since July 2015, while the contraction in mining output was smaller than predicted, figures out Thursday show, suggesting that second-quarter gross domestic product data next month may indicate an improvement.
Some analysts have said that diminished support for the ruling African National Congress could spur policy change to boost the ailing economy and counter the 27 percent jobless rate. The ANC had its worst election performance in local elections last week since the start off democracy 22 years ago, with the opposition Democratic Alliance increasing its hold on Cape Town and making gains in Johannesburg and the capital, Pretoria.
“The market will be buoyed by a bounce-back in second-quarter GDP toward 0.5 percent and a confirmation there is no technical recession -– ignoring the lack of job creation and the ‘feels like’ recession,” Peter Attard Montalto, senior emerging-markets strategist at Nomura International Plc in London, said in a note. “The DA taking control of the major metros should be seen as risk-supportive.”
By 5:21 p.m. in Johannesburg, the rand retreated 0.5 percent against the dollar to 13.4690. In the week it has gained 1.9 percent and is the second-best performer among emerging markets this year. Government bonds gained for a third week. South Africa’s benchmark stock index ended 0.9 percent stronger at the highest since Aug. 1 and posted its first weekly gain in four.
Foreigners have spent about a net 3.9 billion rand ($290 million) buying South African stocks this week and more than 5 billion rand on bonds, figures from the Johannesburg stock exchange show.