Johannesburg - The rand sank this week to within sight of
three-year lows against the dollar as a wave of strikes spread beyond the
mining sector, threatening the biggest industrial crisis since the end of
After two months of violent labour unrest in the platinum
and gold mines, Japanese car giant Toyota said on Thursday its Durban plant had
fallen victim to the wildcat strikes that are shaking Africa's biggest economy
only three months before an ANC leadership election.
President Jacob Zuma is favourite to win re-election as head
of the ruling party, although a widening of the strikes and sell-offs of the
rand and domestic bonds threaten to expose his lack of economic expertise.
So far, a wave of foreign flows into the bond market related
to South Africa's October 1 inclusion in the influential Citi World Government
Bond Index (WGBI) on October 1 have helped underpinned domestic asset prices.
But signs are emerging that the WGBI effect is waning, and
concerns about the strikes' impact on growth is rising.
The rand has lost nearly 1.3% this week, recording its
fourth daily loss in five days on Wednesday as strikes, a yawning current
account gap and a Moody's ratings downgrade took their toll.
"These events have had a marked impact on the currency,
not-withstanding the evidence of substantial purchases of South African bonds
by foreign investors on the back of the WGBI inclusion," said Bruce
Donald, a strategist at Standard Bank.
"The strikes are certainly one of the factors impacting
investor sentiment towards South Africa in terms of the political uncertainty
it might create. It also has negative consequences for growth and for the
current account through its impact on mining exports."
In July, before the wave of strikes started with a wildcat
walkout at Lonmin's Marikana platinum mine, exports of minerals, precious
stones and metals accounted for half of all South Africa's trade receipts.
Moody's last week cut South Africa's sovereign credit rating
to Baa1 from A3 amid a souring of investor sentiment over the protests that
have hit production in the world's top platinum producer and No. 4 gold
All that has put pressure on Zuma's government, which was
criticised for its handling of the unrest at Marikana, where more than 40
people were killed in August, the majority shot dead by police.
This week, Reserve Bank Governor Gill Marcus noted the rand remained vulnerable to "changing risk perceptions in global financial markets and domestic issues, such as the tragic events at Marikana".
Joining the club
The rand has been lifted by about R84bn of portfolio flows
since the start of 2012 as foreign accounts that track the WGBI stocked up on
local debt ahead of the October 1 inclusion, Marcus said.
But the governor cautioned these levels were not
Despite its recent strong run, the rand is still among the
weakest performers against the dollar so far this year in a basket of 20
emerging market currencies, shedding more than four percent since January.
By contrast, units such as the Hungarian forint, Polish
zloty and Turkish lira have rallied 9%, 8% and 4% respectively.
The rand hit R8.4524 earlier on Thursday, within sight of
Wednesday's month low of R8.4590. A sustained hold below the R8.45 area could
push it to R8.55/dollar, then all the way towards the three-year low of R8.71
it hit in early June amid intense concerns about Europe's debt crisis.
Waning WGBI flows make the currency more vulnerable to
swings in global risk appetite as investors eye the unabating credit crunch in
the single currency area.
"We expect the WGBI flows could start to ease up now
after the actual inclusion date and perhaps thin out over the next week or two
and then normality could kick back into effect," said Sean McCalgan, a
market analyst at ETM.
"That leaves the rand in a rather vulnerable position," he added. "WGBI is one of the only positive drivers working in favour of the rand at the moment."