Mak­ing dol­lars and sense

New mar­ket should serve to de­crease volatil­ity

Finweek English Edition - - Creation and preservation of wealth -

FI­NANCE MIN­IS­TER Trevor Manuel’s bud­get this year in­cluded a dis­pen­sa­tion for a rand-cur­rency fu­tures mar­ket on the JSE, for the first time putting SA re­tail in­vestors in a po­si­tion to deal in the cur­rency mar­ket. It’s an­other step on the “tread softly” road to­wards liberalised ex­change con­trols, but a sig­nif­i­cant one.

The mar­ket, to be housed with Yield-X, the JSE’s in­ter­est rate ex­change plat­form, is con­cep­tu­ally the same as a deriva­tive on any other as­set. Cur­rently, South African res­i­dents who want to re­duce rand ex­po­sure would have to phys­i­cally sell their rand, thereby putting di­rect pres­sure on the unit. By go­ing short on rand by sell­ing rand fu­tures, while still hold­ing the phys­i­cal rand, the ef­fect on the cur­rency is muted.

Al­lan Thom­son, di­rec­tor of trad­ing at the JSE, says the new mar­ket should serve to de­crease volatil­ity in the lo­cal cur­rency. “For ev­ery buyer there’s a seller, so un­like the tra­di­tional view that the rand would al­ways de­pre­ci­ate against hard cur­ren­cies, it be­comes a two-way bet, given the pos­i­tive out­look for the SA econ­omy and im­proved fis­cal dis­ci­pline.”

Thom­son be­lieves that the mar­ket needs hedges and spec­u­la­tion to cre­ate ef­fi­cien­cies.

“The fu­tures mar­ket will pro­vide a new av­enue for both lo­cals and for­eign­ers to in­vest, spec­u­late and hedge.”

Bought through Yield-X mem­bers, US$1000 con­tracts would re­quire an ini­tial mar­gin of ap­prox­i­mately R750.

As­sum­ing the in­vestor is bullish on the rand and bear­ish on the dol­lar, he would take a po­si­tion that would ben­e­fit from a strength­en­ing rand over the three-month pe­riod of the con­tract. Re­al­is­ti­cally though, the in­vest­ment could be for three min­utes’ du­ra­tion or rolled into new con­tract pe­ri­ods longer than three months.

Thom­son says that at this stage the only le­gal en­ti­ties not per­mit­ted to trade fu­tures are cor­po­rates and trusts, un­less they have spe­cial Re­serve Bank ap­proval. At 2,5 ba­sis points per deal, trans­ac­tion costs are rel­a­tively small, and he’s con­fi­dent of a good take-up when the ex­change kicks off, likely this May.

For ev­ery buyer there’s a seller. Al­lan Thom­son

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.