When SA’s finance minister Pravin Gordhan was fired those in the know forecast the Rand would tank. Logic suggested it simply had to as Gordhan was the last hope for sane economic policy and the final bulwark between the Treasury and full-scale plundering by the Guptas and their political associates. The Rand duly lost 10% in those dramatic two weeks.
Any rational analysis suggested much worse was in prospect. Critically, S&P and Fitch are on the cusp of dropping SA’s all-important domestic debt rating to junk which will spark a forced selloff of something between R150bn and R250bn in foreign-owned SA bonds. On top of that, the news flow has been at the bottom end of expectations.
Three of Treasury’s Big Four – Fuzile, Brown, Donaldson – have left the building, opening the way for the Zuptoids to have another run at a bankruptcy-creating nuclear deal. That wicked quest is sure to be assisted by corrupt former Eskom CEO Brian Molefe getting his old job back, the unintended consequence of an activist politician’s desire to do the right thing.
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Yesterday former mining minister Ramathlodi disclosed he had been fired after refusing to blackmail Glencore over the infamous Gupta-enriching Optimum Coal transaction. Like Gordhan, he was replaced by a Gupta puppet. On top of that, a clutch of Wall Street banks have recommended to clients that with storm clouds gathering, it’s time to sell Rands.
A rational expectation would be for SA’s currency to be galloping southwards, going well beyond the post Gordhan ejection level of R14 to the US Dollar. Instead, the currency has strengthened, moving ever closer to R12. This has baffled informed analysts.
So what the devil is happening?
One possibility is the SA Reserve Bank has been intervening, using the national reserves to stabilise the currency through buying Rand ahead of the coming storm. There could be something there, although the reality is any SARB impact would only be at the margin. A more likely answer is an insatiable international appetite for emerging market assets. This fashionable EM tide is raising all ships, no matter how leaky their structures.
This is best illustrated by comparing performances of the Rand/Dollar and the best proxy for EM currencies, the Brazilian Real/Dollar. The Rand deviated ahead of and after the Gordhan firing. But in the last three weeks the direct correlation has been re-established. For the moment, global money flows are trumping the Rand’s bad news.
That offers a temporary respite for South African investors, and an opportunity to stock up on hard currency assets, either through direct offshore investment or via JSE-listed Rand hedges. The EM tide is sure to turn. Maybe soon. And when it does, all the world will see SA has been swimming starkers. When that happens, watch out. It’s time to be fearful on the Rand while First World desk jockeys are greedy.
