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Dark clouds loom for Rand after Trump-aided tailwinds

By Alec Hogg

The reassurance of familiarity has been sparked by coming back to SA after an extended period away. The ready smiles, eager-to-please service sector and sunshine on one’s back are reminders of upsides which exist in this unique country.

Yesterday’s high-powered RMB Global conference in Cape Town, delivered another reality. I’ve gone into some detail on the conclusions for the Biznews Premium section. As a rough summary, though, in the world’s financial markets South Africa is classified as a high beta emerging play.

Donald Trump

In simple terms, that means if conditions favour emerging markets, SA’s currency, shares and bonds outperform. And that’s been happening lately – the country is a price taker whose assets have been lifted by Mr Market’s euphoric reaction to the 25-day-old Trump Presidency. Against that flood of money, SA’s domestic political turbulence and Venezuela-like policy proposals don’t matter.

But Mr Market is a manic depressive sans medication. Look carefully and you’ll see his mood towards Trump is already starting to turn. Issuing Presidential Executive Orders are one thing. Getting them executed something rather different. The US’s checks and balances are sure to temper the market’s love affair with the new occupant of the White House. That’s fair warning for those involved in high beta plays. A good time, also, for SA importers to cover their exposure?

Response from Biznews community member David Mordant

The openly promoted philosophy of both the Trump administration and the US Congress is to encourage exports and penalise imports. And the easiest way to do that is to weaken the USD, in which case the Rand will probably strengthen, as we saw today.

My experience as a commodity  and currency trader for many years is that it is impossible to forecast currencies accurately. Therefore cover your trades by all means, but do not take speculative long and short positions in currencies. Unless you don’t mind losing your boots and walking barefooted.

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