Nene rand rollercoaster: Who could have benefited?

Just hours before President Cyril Ramaphosa announced last Tuesday he had accepted Nhlanhla Nene’s resignation as finance minister, and appointed Tito Mboweni to replace him, the rand traded at 15.04/$ at 12:30, a dip of just over 1%.

As rumours gathered steam that Mboweni, a trusted hand at the South African Reserve Bank (SARB) would be brought in to steady the ship, the local currency strengthened and after the news was confirmed, shortly before the markets closed, had firmed more than 1% to change hands at 14.68/$.

The steep gains and losses for the rand in just a few hours represent an opportunity for retail (individual) and institutional investors, if they’re willing to take the risk.

Founder and director of investment website JustOneLap.com Simon Brown told Fin24 that there are people who trade on news flow and while some of them could have had inside information about the finance minister’s fate, others work through the logic of how the rand will react to uncertainty at Treasury.

But he warned “it’s not always as binary as you expect” and the market reaction to news might not always be what people anticipate.

Nick Crail, a fund manager at Ashburton Investments is also cautious, pointing out that the rand is a multi-dimensional currency, affected by developments in other emerging markets and the US.

Difficult to predict rand moves

“There are so many factors to filter in, it’s difficult to predict moves in the rand successfully,” Crail said.

Brown said a “not insignificant” number of retail investors could have tried to anticipate the rand’s moves on Tuesday, while big institutions are likely not to have moved their position in the forex market as they consider it politically risky if it would emerge they had  made money from the resignation of a finance minister.

Crail agreed saying that asset managers are likely to stay away from short-term speculation on the currency as the risk is too high.

He advises retail investors to invest instead in an asset class which they understand the underlying value.

Insider trading?

Wild swings in the rand related to developments at Treasury, such as the recall of then-finance Minister Pravin Gordhan from an investor roadshow in March 2017 and the axing of Nene in December 2015 have previously raised suspicions of insider trading.

Rumours of Nene's offer to resign and of Mboweni’s appointment appeared in news reports last week, several hours before they were confirmed.

Brown said insider trading is very difficult to prove as they are not usually undertaken by the people with access to market sensitive information, in their own name.

The rand, which is one of the most traded currencies in the world, fell 25% in December after Nene was axed by former president Jacob Zuma.

The local currency, after firming in the first quarter of 2018, is down 17% against the US dollar, amid fears of contagion from other emerging markets in distress, a stronger greenback and higher US interest rates.

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