The SA Daily
18 April 2019
Rand-top performing EM
- The rand has gained by about 4.1% after reaching a low of R14.58/$ towards end of March. It is currently trading at R13.98/$, below its 20-day moving average and is the best performer within EM so far this month. On a nominal trade-weighted basis, the rand has also gained 4.3%. It nonetheless, remain undervalued and should firm in 2H19.
- Similarly, the 10-year generic bond yield has gained from around 9.28% towards end of March to 9.01% currently and we expect a continued recovery to around 8.9% in six months’ time and 8.7% in twelve months’ time. Last week net purchases of SA bonds by foreigners amounted to R7.25bn, but have since retreated, currently -R0.79bn so far this week.
- The recovery in both the rand and bonds is in part due to Moody’s steady ratings for SA and some temporal relief from Eskom’s severe power cuts. Signs of steady economic growth in China which is the biggest SA trading partner after the EU and expectations of increased global oil supply should provide further relief to local assets. Further gains in bonds will likely be curbed by the fiscal risk emanating from the revenue under-performance in recent months as well weaker revenue prospects from lower growth.
- Although, the upcoming general elections on 8 May could limit further gains in local assets, post elections, assets could gain further premised on our political and economic policy reform expectations and if there are credible signs of reforms while the global backdrop remains benign, the rand could overshoot our R13.40/$ forecast by year-end and even our fair value estimates.
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