Rand strengthens in a surprise U-turn

THERE were fairly sharp losses on the JSE this week thanks to the rand strengthening.

The All Share index dropped 2.46% to 52 194.60 points in its biggest weekly drop since December as the rand strengthened further against the dollar, defying market expectations.

President Jacob Zuma’s firing of Pravin Gordhan as finance minister in the cabinet reshuffle late last month precipitated downgrades of South Africa’s debt ratings and weakened the rand.

But the local currency was cushioned by dollar weakness and continued bond inflows despite the negative news flow.

Foreigners have been net buyers of local bonds to the tune of just more than R20billion since late last month.

Late on Friday, the rand was hovering around R13.14/$ in a sharp U-turn after last week’s R13.95/$.

This hit rand-hedge stocks, including Steinhoff and Aspen.

Commodity shares were hardest hit, in line with weaker commodity prices, notably iron ore. The price of the key steelmaking ingredient slid to lows of $63.20 a tonne this week, from $94 a tonne in the first quarter.

“Global commodity prices continue to gradually lose traction despite the weaker greenback,” said Momentum SP Reid Securities analysts.

“The technical action confirms nervousness from investors with regard to the overall macroeconomic outlook in Asia.”

Further afield, geopolitical tension continues to bubble below the surface after North Korea’s failed missile test this week, drawing condemnation from the United Nations. Geopolitics have suppressed appetite for global risk and recently popular safe-haven assets such as gold.

The outcome of the first round of the French presidential election on Sunday may shape sentiment in the short run. Investors are keeping a sharp eye on the first-quarter US company earnings announcements which kicked off this week.