The South African rand is viewed as one of the most volatile emerging-market currencies, with that volatility set to continue in 2019 says Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, who forecasts a turbulent year ahead with continued tensions in the US, China and UK mixing with an election year locally.
“Few currencies matched the rand’s turbulence in 2017, with factors such as ‘Trumpenomics’, the firing of finance minister Pravin Gordhan and the appointment of Cyril Ramaphosa as ANC president, contributing to the R2.04 price swing during the year,” she said.
“This volatility continued through 2018 with the US-China trade war, the appointment of Cyril Ramaphosa as the SA president, two new finance ministers and the emerging market rout taking their toll on the local currency.”
Amid the turmoil, the biggest rand performance constraint has been sentiment, Botes said, adding that as long as investors opt for safer investment destinations, emerging markets will continue to bear the brunt of negative sentiment and risk-off strategies.
No respite expected in 2019
According to Botes, South Africans can expect this turbulence to remain in 2019, as multiple factors weigh on the risk appetite of the ever-cautious investor.
“On the global front, while the trade spat between the US and China, with tit-for-tat tariffs, could be resolved early in the year, it could equally drag on for months if presidents Trump and Xi can’t settle their differences in an amicable, mutually beneficial manner.
“At the time of writing, Brexit is still no closer to being resolved, with the UK set to leave the EU at the end of March. On top of these woes, we also see declining global growth which will weigh heavily on all emerging markets and currencies,” she said.
Locally, elections are due to take place in May and the political manoeuvring and uncertainty in the lead-up is certain to make waves. In addition, the stagnating local economy is struggling to secure foreign direct investment as well as local fixed capital formation.
“Investors are no longer only looking for returns, but also liquidity. Investments in liquid assets such as bonds, makes the sale and purchase of investments much easier, meaning that a sudden change between a risk-off and risk-on environment could cause a burst of oversupply or undersupply in the market, driving the currency weaker or stronger in quicker intervals,” Botes said.