Rand falls 2%, lead­ing emerg­ing as­sets down

Emerg­ing Mar­kets

Kuwait Times - - BUSINESS -

The South African rand fell al­most two per­cent yes­ter­day, lead­ing emerg­ing cur­rency losses as the rul­ing party’s ef­forts to re­move Pres­i­dent Ja­cob Zuma failed and the dol­lar firmed af­ter a two-day slide. Most other emerg­ing as­sets also slipped, with the ex­cep­tion of the yuan, which rose to one-week highs thanks to dol­lar-buy­ing by state-run banks and re­ports of fresh cap­i­tal curbs.

Emerg­ing stocks slipped 0.3 per­cent af­ter hit­ting two-week highs, as Asian mar­kets re­acted to Mon­day’s weak Wall Street close and doubts that the up­com­ing OPEC oil pro­duc­ers’ meet­ing will be able to im­ple­ment an out­put cut. Mar­kets will likely focus on South Africa, which dodged rel­e­ga­tion to a junk credit rat­ing last week but faces an­other test from S&P this Fri­day. The rand re­versed some of Mon­day’s 3 per­cent gains against the dol­lar af­ter a news­pa­per re­ported that scan­dal-tinged Pres­i­dent Ja­cob Zuma had sur­vived a rul­ing party vote to oust him. Bond yields rose five ba­sis points off two-week lows.

Mar­kets were await­ing a 1200 GMT press brief­ing by the rul­ing ANC party. Credit Agri­cole strate­gist Guil­laume Tresca pre­dicted more rand weak­ness af­ter the past week’s 7 per­cent gain, and ex­pects S&P to cut South Africa’s credit rat­ing. He noted the agency had down­graded state-run util­ity Eskom last week. “Usu­ally they are more neg­a­tive than the other rat­ings agen­cies re­gard­ing South Africa ... When you read all the state­ments from S&P re­gard­ing South Africa they al­ways men­tion the in­debt­ed­ness of the pub­lic com­pa­nies,” Tresca said.

He said pol­i­tics too would re­main messy. “The feud be­tween Zuma and (fi­nance min­is­ter Pravin) Gord­han is not over. The mar­ket is maybe too com­pla­cent and too op­ti­mistic.” Other emerg­ing cur­ren­cies also eased against the dol­lar, with the rou­ble down 0.4 per­cent and the Malaysian ring­git hov­er­ing near 14month lows on the back of a 1 per­cent de­cline in oil prices. How­ever, the Chi­nese yuan rose to one-week highs as state-run banks stepped in to buy the cur­rency for the se­cond straight day and sources said the coun­try’s forex reg­u­la­tor would step up mea­sures to stem cap­i­tal out­flows through tighter vet­ting of out­bound in­vest­ment deals. Off­shore­traded yuan also slipped af­ter hit­ting record lows last week.

Main­land China blue-chip stocks rose to 11-month highs, tak­ing heart from Mon­day’s data hint­ing at stronger man­u­fac­tur­ing and cor­po­rate earn­ings. How­ever, cap­i­tal out­flows via both le­gal and il­le­gal chan­nels are in­creas­ing pres­sure on the yuan, which has de­pre­ci­ated nearly 6 per­cent against the dol­lar this year. Yuan weak­ness raises the spec­tre of more cap­i­tal flight and So­ci­ete Gen­erale an­a­lysts noted that the do­mes­tic money stock was still grow­ing faster than nom­i­nal GDP and val­u­a­tions for lo­cal as­sets such as prop­erty and stocks looked stretched.

“It is go­ing to be an up­hill bat­tle for the PBoC to re­tain con­trol over the speed of cur­rency ad­just­ments,” SocGen said, pre­dict­ing the yuan would trade at 7.30 per dol­lar by end-2017, re­vis­ing the pre­vi­ous 7.20 fore­cast. — Reuters

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