Behind the rand selloff

THIS TIME, IT’S NOT AN SA-POLITICS-AND-ECONOMY GAME Markets can overreact ... quite strongly and one needs to be cautious about buying into this overwhelmingly bearish sentiment. – George Glynnos.

Rand Merchant Bank.

George Glynnos at ETM Analytics said the rand could retreat back to R12.50/$ to R13/$ as he doesn’t believe that the current sell-off is the start of a big reversal for the local currency – which has remained remarkably resilient.

Before the Fed’s hawkish comments, the rand strengthened in the midst of Zuma’s midnight cabinet reshuffles, jarring state malfeasance revelations involving the Gupta family and state-owned enterprises, double junk downgrades by S&P Global Ratings and Fitch and an economy that entered a technical recession.

“I’m not in the camp that believes that this is the big reversal in the rand, as the fundamentals are not talking to that. It’s about the adjustment for local and international news developments,” said Glynnos.

“Markets can overreact and overact quite strongly and one needs to be cautious about buying into this overwhelmingly bearish sentiment that is doing the rounds.”

The deciding factor for the outlook of the rand will be the ANC’s elective conference in December, which investors will be watching closely.

So, are markets getting so accustomed to bad news about SA that their reaction is becoming minimal?

Wayne McCurrie at Ashburton Investments thinks so. “We are so used to domestic issues that even if the finance minister [Malusi Gigaba] was fired, I don’t think the market would react.”

With the rand flirting with the R14/$ level and the ten-year bond yield nearing 9%, the appetite for SA bonds by foreign investors continues, despite an increasingly uncertain political environment.

In fact, Glynnos said the big inflows in SA have been on bonds while outflows have largely been in equities. “Bonds have made up for what equities have lost. The selloff offers foreigners a fresh opportunity to take advantage of SA interest rates.”