Rand leads emerging market weakness – falls most since 2008 on ‘Brexit’

By Xola Potelwa

(Bloomberg) — South Africa’s rand dropped by the most since 2008 against the dollar and fell to a record against the yen as the U.K. voted to leave the European Union, rocking markets globally.

South African bank notes featuring images of former South African President Nelson Mandela (R) are displayed next to the American dollar notes in this photo illustration in Johannesburg August 13 2014. REUTERS/Siphiwe Sibeko
South African bank notes featuring images of former South African President Nelson Mandela (R) are displayed next to the US dollar.

The currency slumped the most in emerging markets, losing as much as 7.6 percent before trading 6.6 percent weaker at 15.3638 per dollar by 6:23 a.m. in Johannesburg, the weakest level on a closing basis since June 2, according to Bloomberg generic pricing. The rand plunged 11.5 percent to 6.5932 yen.

South Africa’s currency is the most volatile among 24 emerging-market peers, according to data compiled by Bloomberg, suggesting it often trades as a proxy for risk sentiment. A British exit from the EU could shave about 0.1 percentage point off South Africa’s economic growth, according to researchers from North-West University. The U.K. is the fourth-biggest destination of South African exports, according to data compiled by Bloomberg.

“The rand always overshoots on either side, so we would be in trouble” in case of a “Leave” vote, Jim Bryson, a currency trader at Rand Merchant Bank in Johannesburg, said before the Brexit poll started. “One thing it’s going to be is volatile. ”

The pound plunged to the lowest since 1985 and Asian stocks tumbled in one of the most dramatic 24-hours in British history. Sterling initially soared after an opinion poll suggested that 52 percent of voters had backed “Remain.” That rally evaporated as voting numbers started to roll in showing that investors and pollsters had miscalculated. At 5:11 a.m. London time, BBC projections showed voters backing “Leave” by 52 percent to 48 percent.

The rand has slumped 21 percent in the past year, the worst performance after Argentina’s peso among 24 emerging-market currencies tracked by Bloomberg, amid concerns that political upheaval and deteriorating fiscal metrics could lead to a credit downgrade to junk.

The South African currency strengthened 5.2 percent to 20.3760 against the pound, the biggest gain on a closing basis since December.

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