From darlings to duds: SA shares, bonds and the rand are tanking

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South African assets have turned from market darlings to duds.

The rand, bonds and stocks had a flying start to the year, benefitting as a relative haven among emerging markets and from a rise in commodity prices spurred by Russia’s invasion of Ukraine.

But sentiment has soured.

The nation’s assets have gone into retreat as investors assess rising global interest rates, after hikes from the U.S. Federal Reserve and the Bank of England this week. Concerns are also growing over inflation, as well as surging Covid cases in China, and what restrictions imposed by Beijing to fight the virus may mean for the world economy.

The rand is on track for a third week of declines, the longest losing streak since November. Its 8.5% decline over the past month - pushing it beyond the psychological level of 16 per dollar - makes the currency the worst performing in emerging markets.

But some analysts, including those at Societe Generale and Anchor Capital, believe the losses have gone too far.

“The commodity support has not gone away, and South Africa reported a healthy trade surplus in March,” said Nolan Wapenaar, co-Chief Investment Officer at Anchor Capital. “Rate hikes will also continue to bolster the case for the rand, and we maintain our view that the local currency might be able to creep stronger again.” 

And South Africa’s rand debt hasn’t fared much better.

Non-residents were set to be net sellers of the nation’s government securities for the first week since March. By Thursday, foreigners had sold R8.6 billion of bonds, based on settled trades data from exchange operator JSE.

Local-currency-denominated government debt headed for a sixth week in a row of losses, its worst run in eight months.

South African stocks have felt investors’ aversion to risk more sharply than their emerging-market peers, sliding toward the worst weekly slump since October 2020.

Johannesburg’s benchmark FTSE/JSE Africa All Share Index deepened this week’s selloff beyond 6%, a steeper retreat than MSCI’s index of developing country stocks, which is down about 4%.

More than 90% of the South African benchmark equity gauge’s members were lower on Friday afternoon, helping to make it one of the three worst-performers globally this week in dollar terms among more than 90 major indexes tracked by Bloomberg

- With assistance from Adelaide Changole, Kemiso Wessie and Colleen Goko.

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