Con­trary cur­rency play

Finweek English Edition - - INVESTMENT - SI­MON BROWN

THIS ex­change-traded note (ETN) is­sued by Absa tracks the rand/dol­lar ex­change rate. With no gear­ing it moves in sync with the cur­rency, mov­ing higher as the rand weak­ens.

Re­cent rand weak­ness has gen­er­ated all sorts of talk of the cur­rency blow­ing out, but ev­ery time it heads out above R10 we see it strengthen, sug­gest­ing that the bias above R10 is to buy rand and sell dollars, lead­ing to R/$ strength.

While much of the rand weak­ness has been of our own mak­ing, we’ve also seen other emerg­ing-mar­ket and com­mod­ity cur­ren­cies weaken on con­cerns of slower Chi­nese growth, lead­ing to weaker com­mod­ity de­mand and more in­vestor de­mand for the more tra­di­tional stock mar­kets like US rather than emerg­ing mar­kets. How­ever, Chi­nese growth re­mains in place and off a much higher base than a cou­ple of years back and de­mand for yield from emerg­ing mar­kets will not dis­ap­pear. Cou­pled with a rand that is not com­fort­able above R10/$, we ex­pect fur­ther rand strength down to the mid or even low R9s as a min­i­mum.

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