Why foreign exodus has barely budged the rand

While foreign investors dumped South African bonds and equities in the past two weeks at a rate last seen in 2016, the rand didn’t seem to notice.

South Africa depends on portfolio flows to finance a persistent current-account deficit, and with more than 50% of domestic fixed-rate debt in the hands of foreign investors, any reversal should put pressure on the rand - or so the argument goes.

But as outflows mounted, reaching $2.2bn in the 10 days through on Wednesday, the rand gained 1.2% against the dollar.

The last time South Africa saw a similar scale of outflows in a two-week period, in October 2016, the rand weakened 5%.

What’s different this time? The political outlook under new President Cyril Ramaphosa, suggests Henrik Gullberg, the London-based executive director of emerging-market trading strategy at Nomura International.

selling spree

It’s "somewhat strange" that the rand would strengthen "and would suggest there must be some other inflows not captured in the daily bond and equity flows data", Gullberg said.

“That, and the rand’s relative resilience over the past few weeks compared with peer currencies, would suggest there is still belief in the ability of Ramaphosa to implement change, albeit very gradually.”

The rand’s gain in the midst of an emerging market selloff sparked by rising US rates and a strengthening dollar shows there is more to the rand than portfolio flows, said Alvin Chawasema, a fixed-income trader at Sasfin Securities in Johannesburg.

Slowing inflation and a favourable interest rate differential with developing nations also supported the currency, he said.

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

ZAR/USD
17.42
(+0.10)
ZAR/GBP
22.77
(+0.02)
ZAR/EUR
20.59
(-0.00)
ZAR/AUD
12.46
(+0.38)
ZAR/JPY
0.16
(+0.28)
Gold
1952.30
(+1.67)
Silver
27.44
(+7.13)
Platinum
960.00
(+3.27)
Brent Crude
45.32
(+2.09)
Palladium
2175.50
(+1.97)
All Share
57419.46
(+0.00)
Top 40
53082.08
(-0.08)
Financial 15
10227.06
(+0.86)
Industrial 25
75743.15
(-0.61)
Resource 10
59161.88
(+0.29)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Do you think it was a good idea for the government to approach the IMF for a $4.3 billion loan to fight Covid-19?
Please select an option Oops! Something went wrong, please try again later.
Results
Yes. We need the money.
11% - 989 votes
It depends on how the funds are used.
74% - 6590 votes
No. We should have gotten the loan elsewhere.
15% - 1382 votes
Vote