Hesitant about the stronger Rand? Here's how to structure your hedging strategy — Sebastian Steyn (Sable International)

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While many individual investors and emigrants are postponing major financial decisions amid ongoing geopolitical uncertainty and upcoming elections, Sebastian Steyn, Head of Dealing at Sable International, says businesses do not have the same luxury. Steyn told BizNews that South Africa’s growing Business Process Outsourcing sector and multinational SMEs continue to receive revenue in foreign currencies while managing local operating costs, leaving them directly exposed to currency fluctuations. He cites the case of a client who saved millions of Rands through proactive currency risk management using forward contracts and structured hedging solutions. Although several geopolitical and political risks remain on the horizon, including conflict in the Middle East and upcoming elections, Steyn believes preparation and planning remain far more important than trying to time the market. As he puts it, “It is not about being right all the time. It is about being prepared for all eventualities.” – Linda van Tilburg.

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Edited transcript of the interview

Linda van Tilburg (00:00.642) 

The Rand has proven to be remarkably resilient this year amid a year of geopolitical uncertainty. But we go into the last quarter with plenty of risks on the horizon. Those currency moves can have real consequences, whether you are immigrating, sending a child to study abroad, or running a business where foreign exchange and international payments are part of daily operations. Well, joining me today is Sebastian Steyn, the Head of Dealing at Sable International. He's a risk and hedging specialist whose job is to help people and businesses navigate this tricky environment, and I'm hoping he can help us today. Hi Sebastian, so nice to meet you.

I've been watching the Rand this morning, now close to sixteen Rand for a Dollar. So, it had a stronger run in August than usual lately. So, what's driving this?

Sebastian Steyn (00:53.838) 

The Rand, we always tend to look at it in a little bubble, as if it's just South Africa. It's much bigger than that, to be honest. It's a bigger geopolitical and global story, really. So, when we look at the Rand, it's more, in all honesty, America. America's the real one playing the game here, and the Rand's strength over recent times is very much due to that.

And well, basically the US Federal Reserve as well. They've been cutting rates and not hiking rates on their side, and that's been a massive contributor to the Rand's strength. South Africa in itself, we tend to flow with the whims of the world, where if the stock markets are crashing, now the Rand's going to be doing bad. But right now, as I'm sure everyone is aware, the US stock market is absolutely cooking. And with that, risk investor sentiment and a "risk-on" feeling is really prominent in the market, and that's really been helping the emerging market currencies, such as the Rand, as well. So, while everyone likes to think of it as South Africa and politics here and so on and so forth, it's very much a bigger story, a global story, to be honest.

Linda van Tilburg (02:23.308) 

And how much has the price of gold helped?

Sebastian Steyn (02:25.548) 

Definitely. Gold's definitely been a factor at play. I know I've been watching gold over many a moon, and we went from, I think it was $2500 about a year, maybe two years ago, now we're almost at $5000 at that, and it's been an absolute rollercoaster ride.

But South Africa, we always say, is a massive gold exporter. It is one of our major commodities that we export. But if we look at it in the bigger scheme of the whole global economy, we're not even in the top ten anymore. China and other countries are exporting more gold, but yet it obviously still remains a big factor for South Africa. It is our major commodity export, so it's definitely helping the Rand's strength. It is very much helping. And with these extremely high prices that we see, that's also in part due to geopolitical uncertainty. That's when gold prices also jump in, as the classic hedge against inflation. So, with all those things, the Rand has definitely benefited, and it's been on the front foot due to that.

Linda van Tilburg (03:48.064) 

You just talked about the fact that the US and policies, the tariffs in particular, the impact they have. So, what about the Iran war? Because there doesn't seem to be an end to that. What impact is that having on the currency?

Sebastian Steyn (04:03.202) 

It's definitely been a factor. For me or for my clients, what I'm seeing is a lot of people are actually just sitting on their hands. They're not really taking action because, due to all this geopolitical uncertainty, a lot of people just don't really want to commit to, for instance, moving their money offshore to France or wherever, or even just across the world.

So that's been a factor just subduing general trade. But like you mentioned, the whole war affects supply chains, it affects everything. And with all of that, everything's just slightly more subdued. The risk-on factor, or risk-off for that matter on the flip side, has not been as dramatic as one would think, because with a war, you'd think the whole world is falling apart. But everything's remained moderately stable. We saw dips, we saw confusion there in the market, but surprisingly the Rand has remained quite resilient. It did hit a bit of a speed bump, but it's remained quite resilient throughout this whole period.

And we can also see that with stocks where they just keep hitting all-time highs. And that's once again playing into that statement of the risk-on sentiment and how people see emerging market economies. Because we're quite far away from this war. Yes, it has a big effect, like oil prices, filling up my car, you notice it, but it's not like its next door. Obviously, in Europe, people are feeling more concerned. Obviously, the other war that's been raging for how many years now, the Ukraine war, that's also right on their border. And with that, I see a lot of people coming back to South Africa, actually. Some of my old colleagues, ex-colleagues who moved across to Europe, are back. A bunch of people are actually coming back to South Africa because of the uncertainty and everything that's lingering in Europe. It's like the places that everyone always thought were safe havens, now all of a sudden, South Africa doesn't seem that bad. And I think that's also really played into why the Rand has remained quite resilient throughout. 

It always used to be a bit of a touch-and-go situation here in South Africa. Now it's not too shabby. The power is on, everything's actually okay, there's not a war on our border. It's not too bad. 

Linda van Tilburg (07:08.866) 

But geopolitically, we're shaping up for two big elections. So, in November, it's the US midterms and South Africa's local government elections at the same time. So, how does that political factor influence currency risk?

Sebastian Steyn (07:24.642) 

So that's definitely something to look out for. In the bigger scheme of things, South Africa's local government election is not going to be the biggest, noteworthy event. Granted, I say this with a caveat: if everything remains relatively stable. If we get some militant group that decides to take over a municipality, that might change things.

But the way things are looking right now, we're seeing that the DA is probably going to take it through in the WC (Western Cape) or Cape Town area. They're looking to push hard into Joburg. So, if we see positive momentum and positive moves, this could be good for the Rand. Obviously, on the flip side, if we see things going a bit awry in different areas, then it might be a bit of a negative. But overall, I do think it should be looked at, but I don't think it's going to be the major catalyst in anything.

The US midterms, that's definitely another factor. Well, I'm not going to make any predictions there, but we've seen a lot of political chaos in America, and we're very interested to see if the voters actually make a different decision. And the Rand might be a bit upset because we've obviously now, in the last few days, seen this whole fallout between the US and Canada and the renaming of a lake and things such as that, It's all a bit like out of a storybook, a children's book. But we'll see how it all pans out. But yeah, it's definitely a factor. It's not the main factor, though.

The economics is always the underlying theme that everyone cares about. And the US Federal Reserve will be the one that delegates and changes the course of everything. So that's our bigger, overarching thing that we need to look at. So, if the US Federal Reserve actually starts raising interest rates, well, I would not expect the Rand to remain at this level. We will definitely see a flip side to this whole thing. But once again, that really brings into good question the independence of the US Federal Reserve, and will they play to Trump's tune, or will they actually try and curtail inflation?

So, there are a lot of plates spinning in the air, a lot of moving parts. And one thing, once again, affects another, and then it's a whole cataclysmic effect. Right now, we're looking solid. I think we'll probably remain looking solid for the next little bit. But yeah, anything from three months out is a question mark because, obviously, inflation can start kicking off again. 

Who knows about this war in the Middle East? Will oil start flowing because one thing can become a great event? All of a sudden, the Strait of Hormuz is open, everyone's happy, there's a great little flow of oil, and everything is just going. Then why can the Rand not strengthen? The Rand is in a happy place. So, yeah, a lot of factors at play.

Linda van Tilburg (11:16.854) 

When you look at all these factors, what are your clients telling you? You said earlier they're sitting back at the moment; they're not moving money overseas. So, are they waiting for the local government elections to say, "Well, let's just see what happens there," or are they waiting for the US elections to see what happens there?

Sebastian Steyn (11:33.53)

No, so the clients are mostly waiting because the Rand is so strong. So, my local South African clients who are looking to send money out of the country, one would think this is the time to take action. But no one actually knows what's happening in the greater political scheme, do they want to actually move to Europe now? Or do they want to purchase that property in Malta or wherever?

All these things are keeping them slightly at bay. Obviously, the ones who are investing in stocks and so on, they are sending because the Rand is very strong and the stock market is cooking. But the discretionary payments, where you don't actually need to buy a house in some foreign country and so on, those funds are kind of just staying back more, which I find surprising because the Rand is so strong, and they are really winning if they were sending money out right now.

On the flip side, my clients who are now sitting in the UK, for instance, many of them moving back to South Africa, want to get out. They want to get back to South Africa, but now the currency's so strong. And everyone got used to a Pund/Rand 23, 24. Here we're sitting in the R21s. Now you're quite sad; you've just lost ten percent compared to where you were. And obviously, we've seen the Rand at twenty-five at its peak, so everyone looks back at those times and thinks, "Yoh, I should have done it then." But at that point in time, you didn't want to do it because you weren't so sure about South Africa. So, on both sides of the equation, I have people sitting there just wondering when to take action and what to do.

This is obviously just in the individual sphere. In the corporate sphere, you don't really have much choice. You have to pay salaries, you have to pay suppliers, and all of those things. The South Africans who are paying suppliers offshore are happy because the Rand is strong. The ones who are receiving money slightly less so. There are multiple ways and means that we assist them in trying to find the best way forward.

Linda van Tilburg (14:10.855) 

There's a sector that's really exposed to currency swings since they earn offshore and pay local costs, and that is South Africa's business process outsourcing companies, or BPOs. So, what advice do you have for them to hedge themselves against these fluctuations?

Sebastian Steyn (14:28.79) 

The BPO sector is actually a big part of my business. Many of them utilise our company to bring in basically their salaries for all their employees. I might digress with a little anecdote of how one of my clients really won in this whole situation.

When the Dollar-Rand jumped up to almost twenty, when it jumped up to those high levels, this client of mine (we've been doing business together for about five, six years) was ready to take action at that point in time. And when that happened, we booked about, I think it was like R80-million in for him, and he's got salaries of ten million every month. And that was booked in at around about R18.50, somewhere around there. Now we're sitting at like R16.00. So, every month, he is just winning and winning and winning. It's about $600,000 a month that he's bringing in at R18.50, which is like R2.50 better than where we are. So that's like quite a few million Rand that he is saving every month.

So basically, the strategies, well, we obviously assist the clients with the strategies, but I think the main thing is that they need to be ready to take action when these times come. Because it's all good and well when you see the market kicking off and it's at this phenomenal level, but now you first need to phone us, get the account set up, you need to get basically some strategies in play, and these things happen very quickly. The market bounces up and it falls back down, and this can happen in a day or two.

So, I very much would advise people to actually give us a shout and actually talk to us. It's a casual conversation, just to discuss what their actual needs are. But what we do for these clients, one of the main things, is book in a forward rate. So, we lock in rates for the future, because you know what your expenses are going to be.

You know, every month I've got X amount in salaries. Then we can book in all of it, or we can book in half of it. And as my one director used to mention, even not hedging is a strategy in itself. But right now, those guys who were hedging with me are definitely happy about it because everyone's at least 10% better than where they would be, some more. And in the bottom line, because that's obviously what matters for these companies to survive, that ten percent is a very big number. It's a very big number. And it's just like thinking ahead and being ready to take action. Those are the two major things, because we need to know what you want, and you need to be ready to take action when that time comes.

When it's in a downward slope like this where we are right now, it's obviously not the most fun conversation. It's like, "Well, we can lock it in at this lower rate," but is it really the time to do it? But then if you are ready and it bounces up a whole Rand or something, which happens quite quickly; the Rand moved about what, 5% or 6% the other day, then you definitely want to be ready to take action. So, it's not about having the conversation at that point in time. It's about having the conversation beforehand so that we can jump on it when the time is right.

Linda van Tilburg (18:25.59) 

So that's your advice for companies. Would that apply to individuals as well? Because a company knows what of money is coming in, but for an individual, how should they view it?

Sebastian Steyn (18:37.326) 

So for individuals sending money out of South Africa, for instance right now, like I mentioned, if it's money that you need to go pay, like you mentioned school fees or university fees and so on, it's definitely not a bad time to be looking at locking those things in. Because next year, well, hopefully everyone passes their university, but they'll probably have to pay it again next year.

So, looking at locking in a forward rate right now is a good call. That's also what sets us apart from a lot of other entities, where we have this facility where we can offer this to clients. A bank is not going to do this for you. And in the global sphere, Revolut and Wise and those companies don't have these facilities. You know, they do simple "money here, money there" transactions. Whereas we are more bespoke; we assist and talk to clients. And we've got a lot of people with a wealth of knowledge. Like, I've been doing this for almost 13 years, and my team also knows exactly what's going on. I think talking to a real consultant and a real person is actually where you want to be, instead of just doing something on an online app, which is obviously simple and easy, but you don't get that wealth of knowledge. And that's really what sets us apart as a value.

Linda van Tilburg (20:16.734) 

When we look at the local government elections, some of the coalitions that form could be quite shaky. And markets like stable coalitions. We've seen with the GNU on a national level that markets prefer when there isn't trouble. So, how would that and possible instability in the US, if Trump or the Republicans do badly in the midterms, how would that affect currencies?

Sebastian Steyn (20:44.596) 

Well, that's a 100% truth. Markets love stability. If you know what's happening, then you can actually prepare for it and you can move forward with that in mind. Remember during load shedding here in South Africa, if you knew when the power was going to go off, you could work around it. But if it just goes off randomly, it's chaos, absolute chaos.

So, yeah, the stability of the GNU is a massive factor that is always hanging around here in South Africa after the last national elections. I just remember when there was the VAT story during the budget, I think it was last year or two years ago, when they wanted to increase VAT and then the DA said they were going to pull out of the GNU if they were going to increase VAT. Now, at that point in time, the Rand started weakening, and I remember watching this, and it's just climbing and climbing and climbing, and it's about a Rand higher.

Then at the same time, that plays into the whole global geopolitics and the Americans. Because Trump right then decided to implement all those tariffs, and all of a sudden, the Rand is on this absolute wild ride where one moment it's here, the next moment it's higher, the next higher. So that's where everything is so interconnected. Even though we don't really look at everything, like, cool, the local government thing is a thing, but if something goes bad there, all of a sudden, the Rand is on unstable footing. Now something else happens in America, and it's even more unstable. So, all of these things are so vastly interconnected. One can't ever pinpoint one single factor, but it really does have a factor to play. So, one definitely needs to keep an eye on those.

Linda van Tilburg (22:59.852) 

So, do you expect a bumpy ride in the next quarter, or do you think it might be like it was in the previous one?

Sebastian Steyn (23:06.432) 

Yeah, I honestly think it's going to be relatively stable, because for local government elections, I think people have planned and know what's going to happen. Once again, obviously, there might be an event where it all changes. In the US, I think people are already planning for a move away from Trumpism and that fierce rhetoric that's been going on there. But once again, you don't really know what those guys are going to do, so that could cause some volatility. But the way things are looking right now, I'm anticipating things to be relatively stable. Relatively stable, take that with a pinch of salt.

Linda van Tilburg (23:49.666) 

So you think markets might have factored all these things in already?

Sebastian Steyn (23:53.844) 

Exactly, exactly. I'm very much under the impression that the markets, there are very big, smart guys out there in the world who are managing trillions and trillions, and they are thinking and have permutations of everything out there, and the markets have generally factored in most market events. I also think it's not really about being right all the time. It's about being prepared for all eventualities. And I think that's where the market's at, at this point in time and in this age where we are. They factor in the various permutations of what might transpire here and what might transpire there. And with a little tweak, everything remains relatively calm. So, I do think that's probably what's going to happen and what's currently at play. But we will see. It's always a fun ride, irrespective.