Alec Hogg: Commodity prices are a Rand warning

For some years now, professional traders have made good money by using the correlation between commodity prices and the South African Rand. Among their most profitable periods have been when the uninitiated get panicked by negative political or social developments occurring during commodity bull markets..Sobering, isn't it? No matter how badly Pretoria manages the economy, no matter how much social chaos rages, the country's "share price" reacts primarily to the way commodity prices perform..___STEADY_PAYWALL___.The graph above from our partners at The Wall Street Journal illustrates the point. In July, while large parts of KZN and Gauteng were rocked by mass looting, the Rand barely moved, trading between R14.50 and R14.75 to the US Dollar throughout the anarchy..But in the past two weeks as commodity prices started to come under pressure on concerns around the Evergrande crisis in China, SA's exchange rate tumbled from R14.14 to yesterday's six week low of over R15..Running a line through the MSCI World metals and mining index (see graph from the FT above), the immediate outlook looks decidedly shaky. Since May, the commodity price reflective index has given back the 25% gained in the first five months of 2021..Traders had been hoping for a restocking boom fuelled by heavy state spending on post-pandemic infrastructure projects. But that view has reversed. Even as mining companies reported record profits and paid generous dividends, their share prices went the wrong way..The scale of this turnaround is best reflected in an iron ore price that's dropped from May's record of $233/t to under $100/t..Share markets provide a consolidated view of what investors believe lies ahead in 12 to 18 months' time. Given what we've been seeing in valuations of resources businesses, the commodity-price correlated Rand seems set for a rocky period..More for you to read today (click on the linked headline to access):.* Cryptocurrency exchanges curb trading from China after Beijing's warning. Huobi Global said it stopped allowing new customers in mainland China to register accounts..* Commodity boom is too much of a good thing for many traders. Rising prices require traders to borrow more money. For smaller players that funding has been hard to come by..* 'The Strategy of Denial' book review: Will China take Taiwan? Xi's message to neighbours who resist Beijing's political ambitions is clear: US defence commitments cannot protect you..PS The BizNews Share Portfolio update webinar will be held tomorrow. It is only for Premium members: register here..NB FOR YOUR WALL STREET JOURNAL ACCESS….As a Premium subscriber you are entitled to full membership of wsj.com (normal price $29 a month). Be sure to action your access through the Premium link on the BizNews website. Because of The Wall Street Journal's credential requirements, be sure to create a password which has at least 8 characters and includes at least one letter and one number – NB it MAY NOT contain any special characters (ie #, !, @ etc). To maintain access to WSJ.com, you MUST enter our partner's website via BizNews Premium at least once a month. A final PS, if you had previously signed up for WSJ you'll need to clear the cookies from your device. Our help desk can assist – support@biznews.com.If you'd like to help sustain our independent voice, why not share the love by making a gift that keeps giving? Click here to access the BizNews Premium subscription signup form, and be sure tick the relevant box. At R100 a month and inclusive of full membership of The Wall Street Journal, it's a mind-expanding gift at an incredibly modest price.

Alec Hogg: Commodity prices are a Rand warning

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