RENEWAL REWARDED

The rand has defied the doomsayers, buoyed by supportive global and domestic conditions. It could end the year even firmer if SA can navigate a few looming icebergs

Remember the “flash crash” two years ago that took the rand close to a record of R18/US$, R23/£ and almost R18/€? It was the point when some doomsday commentators gave up on SA, invoking a future where the rand slid rapidly to

R20/$ as the country lurched into anarchy and decay.

At the time it was normal to see the rand rated as the worst performer globally and the country listed as among the emerging markets most vulnerable to the global sell-off that was under way.

So South Africans should be forgiven for feeling some elation at the rand powering back to R11,86/$ last week — its strongest in almost three years. It has also managed a respectable R16.81/£ and R14.72/€.

Rand Merchant Bank currency strategist

John Cairns had expected the rand to strengthen to R12.50/$ if deputy president Cyril

Ramaphosa won the ANC election in December and to reach R12/$ only by the end of this year.

“So it has done a lot better than we thought,” he says. “We got there on January 24.”

Apart from SA’S toxic politics, the bulk of the rand’s weakness over the past few years has been due to two mutually reinforcing global trends: a strong dollar cycle and a weak commodity cycle.

Both of these cycles have since turned, allowing the rand to benefit from a weak US dollar environment, rising commodity prices and bullish sentiment towards emerging-market assets in general.

The US dollar is at a three-year low, having lost a further 2% of its value so far this year on top of the 10% decline it experienced in 2017.

Analysts say the dollar is weakening on political dysfunction and policy confusion in Washington, including concern over a possible government shutdown on February 8 due to a budgetary deadlock, and doubts about Washington’s commitment to a strong currency.

Ongoing worries over tougher US trade restrictions aren’t helping. Last week the country placed tariffs on imported solar panels and

What it means: As long as Ramaphosa can sustain his momentum the rand should stay strong

washing machines. The latter will raise the cost of some appliances by as much as 50%.

“US dollar weakness boosts commodity prices and, as the rand is a commodity currency, this in turn supports rand strength,” explains Investec economist Annabel Bishop.

Commodity prices, particularly those of metals, are soaring, with coal reaching a five-year high of $100/t and gold and platinum coming close to their best levels in the past year.

The Economist’s commodity-price index has risen by 20% since falling to an almost seven-year low in January 2016.

All commodity currencies have benefited from these global shifts. However, only the Mexican peso has outperformed the rand this year. This suggests that part of the rand’s gains must be Sa-specific.

Cairns believes as much as 75% of the rand’s gains since December are a result of domestic developments, specifically the surge in positive sentiment generated by Ramaphosa’s ANC election victory.

And instead of that confidence waning on subsequent political infighting and policy inertia (though it is still early days), Ramaphosa seems to be just getting into his stride, judging from his warm reception at the World Economic Forum in Davos last week.

Goldman Sachs’s suggestion that SA could become the hot emerging-market story of 2018 appears to have gained some traction in Davos, and people were eager to hear from SA’S new president-in-waiting.

There was standing room only at the annual SA Davos dinner, and private investors at the Swiss resort reportedly swamped trade & industry minister Rob Davies with plans for new projects, including a $300m new automotive plant and an offer of $25bn for infrastructure from a Southeast Asian sovereign wealth fund.

Attending his eighth Davos meeting, Business Leadership SA CEO Bonang Mohale said the atmosphere in the Team SA camp was like “chalk and cheese” compared with previous years, “when we had lost our shine”.

The SA delegation consisted of 54 people, including a raft of cabinet ministers and leading CEOS.

Ramaphosa charmed the global financial community with his message of renewal and commitment to tackle corruption.

Ashburton Investments head of fixed income Shalin Bhagwan says Ramaphosa’s message in Davos was essentially: “SA is back, possibly from the brink, but from here on count on us to get stronger, better, faster.”

He promised stronger governance through a resolute focus on stamping out corruption as well as stronger relations between government and business; better accountability to the people of SA; certainty of government regulatory policy; and faster progress in achieving the country’s goals.

“The markets are liking what they see in the man — his clarity of thought and purpose, his seriousness, and the actions he has taken over the past two weeks,” says Mohale.

These include the announcement of a judicial commission of inquiry into state capture; the Asset Forfeiture Unit’s freezing of certain ill-gotten gains; the prosecuting authorities’ move on Gupta interests and