Volatile rand ‘bad story for econ­omy’

Fi­nance lead­ers say uncer­tainty about the rand’s show­ing is the worst of it

Weekend Argus (Saturday Edition) - - BUSINESS - JU­NIOR BESTER

THE FLUC­TU­AT­ING rand is mak­ing trad­ing and busi­ness dif­fi­cult for many lo­cal com­pa­nies.

Paul Ste­wart, man­ag­ing di­rec­tor of Plexus As­set Man­age­ment, said: “The rand’s 2011 year-to-date per­for­mance has been poor, de­valu­ing 23 per­cent against the euro and 26 per­cent against the US dol­lar.”

Ac­cord­ing to a re­port com­piled by Reuters, the rand has tum­bled two more per­cent against the dol­lar, fur­ther il­lus­trat­ing the in­con­sis­tency of the SA currency’s per­for­mance in the global mar­ket.

Ste­wart said: “The co­nun­drum is why the cur­ren­cies of emerg­ing mar­ket coun­tries, who have far bet­ter fis­cal and mone­tary con­di­tions rel­a­tive to the de­vel­oped world coun­tries whose economies are re­ally in dire cir­cum­stances, have in fact de­val­ued. The own­ers of the world’s cap­i­tal are clearly not ready to em­brace the emerg­ing mar­ket story in any sig­nif­i­cant way yet.”

Ste­wart said if things con­tin­ued this way, it could spell ma­jor prob­lems for emerg­ing economies across the globe.

“Ob­vi­ously, currency volatil­ity has neg­a­tive con­se­quences on trad­ing and busi­ness in gen­eral. While the volatil­ity can be pos­i­tive (the rand strength­ens ver­sus the trad­ing part­ner) or neg­a­tive (the rand weak­ens), it’s re­ally the uncer­tainty of a volatile currency that makes busi­ness and cap­i­tal plan­ning com­pli­cated. A weak but sta­ble currency can be planned for far bet­ter than an un­usu­ally volatile one.”

Ste­wart said the fluc­tu­at­ing rand had al­ready caused ma­jor prob­lems in terms of fu­ture plan­ning. He also ex­pressed con­cern for im­porters and ex­porters fac­ing ups and downs

Worry about weak Euro­pean econ­omy is ma­jor driv­ing force

be­hind weak rand

be­cause of the tur­bu­lent rand.

He added: “While we may feel that the re­cent volatil­ity has been ex­treme, the re­al­ity is that it has only been since Au­gust 2011 that the volatil­ity has re­ally es­ca­lated. Prior to this the volatil­ity was ac­tu­ally low for two years.”

Dawie Roodt, chief econ­o­mist at the Ef­fi­cient Group, said: “The main driv­ing force be­hind the weak currency has been worry caused by the weak­en­ing euro eco­nomic sit­u­a­tion.”

He said the weak Euro­pean econ­omy had caused a ma­jor scare across the globe.

“The ma­jor scare has come from Europe, be­cause if the euro col­lapses, it will cause a global de­pres­sion.”

Roodt added that the sit­u­a­tion could cause a rare eco­nomic con­di­tion for SA known as stagfla­tion, which oc­curred when there was high un­em­ploy­ment and a slow­ing econ­omy.

“The cur­rent econ­omy has seen in­fla­tion rise while growth has been rel­a­tively slow, which ul­ti­mately could cause stagfla­tion, which makes for a poi­sonous cock­tail for South Africa.

“Ex­porters will be happy for the time be­ing as they will re­ceive more for their money, yet im­porters will strug­gle and be ex­tremely un­happy. Con­sid­er­ing all facts, it cer­tainly makes for a bad story for the econ­omy.”

Roodt said there was a need for a sta­ble currency as the tur­bu­lent rand had made it dif­fi­cult for lo­cal busi­nesses to make plans, or put them into op­er­a­tion.

Brigid Tay­lor, head of in­sti­tu­tional sales at Nedbank, said ef­forts made by the EU were dis­ap­point­ing and caused ten­ta­tive risk trades.

“The euro zone debt cri­sis has been one of the big­gest fac­tors in­flu­enc­ing the rand in the past months, over­shad­ow­ing do­mes­tic events.

“The rand is highly liq­uid, and the rel­a­tively highly traded currency causes it to be seen as a barom­e­ter for risk sen­ti­ment.”

How­ever, Ste­wart said the sit­u­a­tion had been worse.

He said even though volatil­ity had in­creased in re­cent times, it was still not close to the lev­els ex­pe­ri­enced in the midst of the global fi­nan­cial cri­sis in 2008/9.

UPS AND DOWNS: Currency fluc­tu­a­tions have been plen­ti­ful.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.