Rand surges

JOHANNESBURG. — The South African rand’s surge lasted only as long as it took Cyril Ramaphosa to get himself to the top of the nation’s ruling party.

Now that he has, the currency’s world-beating rally is losing steam, and derivatives markets suggest it’s vulnerable to a renewed sell-off.

The rand has climbed 14 percent against the dollar since hitting a one-year low on November 13, as investors bet that Ramaphosa would defeat his rival, Nkosazana Dlamini-Zuma, to take over the African National Congress and put himself in prime position to succeed Jacob Zuma as president in 2019.

The rand traded sideways, suggesting investors want to see improvements to South Africa’s longterm prospects before increasing their exposure to an economy that’s barely growing and at risk of having its debt downgraded further into junk territory.

“The market has got ahead of itself as the victory of Ramaphosa does not spell the end of South Africa’s issues,” Guillaume Tresca, an emerging market strategist at Credit Agricole CIB in Paris, said on Tuesday.

“It’s facing a turbulent period in the near future, which will make its assets vulnerable. Moreover, the medium- to long-term outlook is still not positive for the rand.”

Tresca recommended shorting the currency against the dollar and targeting a 7 percent drop to 13,61. The rand was trading at R12,75/$, 0,2 percent weaker at 07:37 yesterday morning. The price of derivatives allowing investors to benefit from a weakening of the rand has gone up.