Breaking news: Blackouts fuel pandemic-like rout in South African markets

The rand has reached its lowest level in three years as the country’s energy crisis and economic downturn continue to concern investors. The rand has lost 1.1% of its value against the dollar, the biggest loss among major emerging markets, and is now at its lowest level since May 2020. Yields on bonds maturing in 2048 have risen for a fifth day, reaching their highest level since March 2020. Eskom Holdings, the state power utility, has been implementing rolling blackouts since 2008 to reduce reliance on its ailing power plants. The company has announced that it will remove up to 6,000 megawatts of capacity from the national grid indefinitely.


By Colleen Goko*

The rand weakened to its worst level in three years and yields on local-currency bonds rose as concerns over South Africa’s continuing energy shortage and deteriorating economic outlook intensify among investors.

The currency of Africa’s most industrialized economy weakened as much as 1.1% on Wednesday to 18.8368 per dollar, the biggest loss among major emerging markets to the lowest since May 2020. MSCI’s gauge of emerging-market currencies was 0.2% higher on the day.

Rand-denominated government securities also sold off at the longer end. Yields on bonds maturing in 2048 climbed for a fifth day, the longest streak since August. At 12.2%, they are at their highest since March 2020. 

Eskom Holdings SOC Ltd., the deeply indebted state power utility, has been implementing rolling blackouts since 2008 to reduce reliance on its ailing power plants. Those outages have intensified in recent years and the country has been subjected to 16 consecutive months of blackouts that can last as long as 12 hours a day. The company said over the weekend it would remove as much as 6,000 megawatts of capacity from the national grid indefinitely.

Rand Shift

The rand had been stuck in a range of between 18 and 18.50 for about a month, then weakened after news that blackouts — known locally as loadshedding — would remain at higher levels indefinitely. The pound-rand cross has also shifted, with the pair touching its highest since January 2016 in intraday trade on Wednesday.

“The power crisis and the associated loadshedding means the economy is at risk of stagnation with severe bottlenecks overall in infrastructure and through supply chains,” said Erik Meyersson, chief emerging-markets strategist at SEB AB in Stockholm. 

“Add to this some recent sluggish high-frequency statistics, an acceleration in consumer price inflation, and investors will likely have cause to worry about the near-term economic prospects in South Africa,” Meyersson said. 

South African equities were relatively stable, with the benchmark index up 0.3% by 4 p.m. in Johannesburg, buoyed by gains in mining shares and tech investors Naspers Ltd. and Prosus NV.

Earlier this week, Treasury officials confirmed that a budget surplus was no longer likely for South Africa, predicting a miss of about $500 million after revenue collections fell short. 

Traders in the options markets are beginning to position for further rand losses, even after a US inflation report matched expectations. The currency briefly rebounded off its lows following the data, but soon weakened again. One-month risk reversals climbed for a fourth day, the longest streak in two months.

A breach of 18.72 per dollar could see the rand weaken to 19 soon after, said Warrick Butler, head of foreign exchange trading at Standard Bank in a note to clients.

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