Skittish little buck looks weary
Over the decades, the rand hasn’t always done what you might have expected, but are there still any surprises left?
In mid-November, the rand tumbled to fresh lows of R14,43/US$. Since 1982, the rand has depreciated by 95% against the greenback. Since the advent of democracy in 1994, the loss has now been 75%.
Given the rand’s somewhat predictable performance over the long run, it is sometimes surprising to hear people asking about expectations for its value. Equally, there are questions over whether it’s better for the rand — or any currency — to be strong or weak.
The answer, in a nutshell, is that the preferred currency is one that remains relatively stable over the long term. This reduces risk and facilitates successful planning of projects and strategies.
A currency that perpetually depreciates means ever-increasing prices for imports, including technology. All things being equal, a currency adjusts to reflect a country’s relative terms of trade. So, if SA’s exports became highly competitive, the rand would tend to strengthen.
But the opposite has been the long-term trend for SA: exports have become less competitive and have been supported by a weakening rand, while imports have become more expensive.
The greatest factor in determining currency value over time is the issue of certainty.
So what has the rand done in the long run? From its inception in 1961 through to 1982, a rand cost $1,40. For decades, it was one of the world’s strongest currencies, backed by domestic gold production and unmined reserves.
But after gold output began falling from record highs in 1970, and under growing political pressure, the rand broke parity with the dollar in March 1982. It soon cost more than R1 to buy a dollar and, by February 1985, a dollar cost R2.
Then when PW Botha made his infamous Rubicon speech in August 1985, a dollar cost R2,40. It slowly slid further over the next few years as pressure built on the apartheid government.
By November 1992, a dollar cost R3 and after the first democratic elections in 1994 it was R3,60. During 1996, there was a “sell-off” of the rand: the currency lost 20% of its value, falling to R4,50.
Around September 1997, when the so-called Asian contagion gripped global markets, the rand lost another 20%, before firming again in 1999 to trade between R5,50 and R6,40 to the dollar.
When Thabo Mbeki was inaugurated as president in 1999, the rand broke through R6/$ and it started the new millennium at around R6,12/$.
In December 2001 it fell to R13,84/$. That record stood until September 2015.
A commission was appointed to look into the currency collapse and within months the rand was again below R9/$. By the end of 2004, a dollar cost a more modest R5,70.
There was ample circumstantial evidence of delinquency in the market, but the hearings were terminated prematurely and none of the culprits faced punishment.
This year’s currency weakness is based on fundamentals, reflecting deterioration in SA’s terms of trade. And government lacks any discernible policies aimed at supporting a stable rand.
This is despite the fact that the constitution says the SA Reserve Bank’s mandate is “to protect the value of the currency in the interest of balanced and sustainable economic growth”.
Over 33 years, the rand has fallen from $1,40 to $0,07, a decline of 95%.
In 2013, Morgan Stanley declared the rand one of the “fragile five” currencies, along with the Turkish lira, Indian rupee, Indonesian rupiah and Brazilian real. Then in August 2015, the financial services firm included the rand as one of the “troubled ten”.
This history needs to be considered in investment decisions.
There’s protection in a portfolio of listed stocks that generate revenue in hard currencies or which own income-producing assets in “hard currency nations”.
The list of rand hedges includes industrials such as Naspers, Steinhoff, Richemont, MTN and SABMiller or resources shares such as BHP Billiton, Mondi and AngloGold Ashanti. It also includes property companies such as Capital & Countries and Redefine International as well as those earning hard currency, including Discovery, Mediclinic and Datatec.
Quality local property is another option. Even in Harare, well-maintained residential units showed strong value after the meltdown of Zimbabwe’s once-prosperous economy.
The ruling ANC and government lack any discernible policies aimed at supporting a stable rand