It’s not the poll in SA, it’s the one in the UK

NOISE that the rand has been strengthening on the poor performance of the ruling party at last week’s polls is just a bit of political point-scoring. While successful polls serve us well to cement a view that South African institutions remain strong, to equate them with the strengthening currency is a bit much.

More at play is the weakening US dollar and UK pound — the same currencies that not too long ago you would have bet your house on to appreciate with their central banks set on a course of hiking interest rates as their economies grew.

While the US economy hasn’t quite fallen off a cliff and in fact remains on a steady upward curve, much has occurred in the year to leave US Fed chair Janet Yellen dithering over hiking rates any further. Her first and only salvo so far has been in December.

Due to Britain’s decision to serve divorce papers on the EU, the Bank of England has just recently had to cut rates for the first time in almost a decade, as economic growth concerns weigh on the island and London in particular.

At the turn of the year, tightening monetary policy in the US and the UK on the back of their better-performing economies spelt the worst possible outcome for emergingmarket nations such as South Africa. Hot money, in search of higher-yielding assets and better growth prospects, was set for the financial centres of New York and London.

It hasn’t quite played out that way, the turning point being the vote on Britain’s exit from the EU. Economic evidence of at least its short-term impact is now coming through in the data. Last month, UK GDP shrank 0.2%, according to its National Institute of Economic and Social Research.

The still unfolding impact of it on the rest of the European continent and trouble across the Atlantic have only muddied the Fed’s crystal ball. To continue on its tightening path, Yellen and her fellow governors may risk throwing US growth off track.

No one is too sure if the Fed will hike this year or even next.

The dollar’s reaction has been to be one of the worstperforming G10 currencies — the euro, pound, Japanese yen, Swedish krona, Norwegian krone, Australian dollar, New Zealand dollar, Swiss franc and Canadian dollar — this year. Only the pound and the Swedish krona have been weaker.

Its woes have seen the Brazilian real strengthen more than 20% against the greenback, making it the best-performing emerging-market currency of the 24 tracked by Bloomberg. Its performance must be seen against the backdrop of the country being in the grip of what’s believed to be its deepest recession in more than a century and a political soapie around its president.

The rand has been the secondbest-performing currency, about 13% stronger. While politically there are no doubt many

The economic fundamentals aren’t much of a source of strength

positives in the apparent maturation of the 22-year-old democracy in recent weeks, the economic fundamentals aren’t much of a source of strength.

At the very best, we can expect a stagnant economy, and perhaps some fallout from an expected reshuffle of the cabinet. A year in the presidency of Jacob Zuma never passes without some tinkering.

And yet, despite these still very unsettling times, the rand is having its best year in three.

It’s the nature of markets, in this day and age, to ignore fundamentals when it suits them. They give way to pursuit by hot money and right now it’s the higher-yielding assets offered in emerging markets.

However, it’s something that can quickly change, regardless of South Africa’s political theatre.