5 reasons why the rand is battling

Cape Town - There's blood in the markets and emerging markets are the worst affected, say the analysts at Overberg Asset Management.

Brett Birkenstock and Kirk Swart provide five reasons for the rand's weakness:

1. Negative sentiment towards emerging markets

Global investors have taken a risk off approach with devastating effects for emerging market currencies and stocks alike. The ZAR and JSE have not been excluded.

2. Run to safe haven assets

A return to bonds, gold and hard currencies such as the US dollar and British pound has seen investors dropping risky assets. The ZAR is paying the price for being considered a non-safe haven.

3. China slowdown

China has been the world’s largest consumer of raw materials and commodities in their drive to grow their economy. They have managed to grow their economy in excess of 7% the last few years with the help of accommodating policies. The slowdown in the Chinese economy has led them to devalue their currency in an attempt to stimulate their export sector. This has led to other nations following suit by devaluing theirs in an attempt not to fall behind.

READ: LIVE - Markets in turmoil

4. South African exposure to commodities

Although the financial sector is the biggest contributor to the South African economy, South Africa is still a country that relies heavily on commodity exports. With commodity prices falling due to the slowdown in China, all currencies that are exposed to commodities are being sold off.

5. Internal problems

South Africa is a country that is struggling to solve its own internal problems which is contributing to further rand weakness. Although the sentiment surrounding emerging markets is negative, South Africa is not helping its own sentiment by not solving its internal issues. Electricity shortages, a struggling manufacturing sector, as well as the latest visa regulations debacle have to be addressed if the long-term decline of the rand is to be turned around.

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