Comments on ZAR

7 June 2019

1. The rand started Tuesday’s trading session on a firm footing at 14.45 against the US dollar, but lost ground ahead of the GDP release, with the -3.2% print sending it to 14.65 by midday. The slide did not stop there, comments by the ANC Secretary-General Ace Magashule at the media briefing post the ANC NEC Lekgotla that the mandate of the SARB should be expanded to include growth and employment, sent the rand to 14.77 against the US dollar by 18:30.

2. This morning we find the ZAR on the backfoot currently testing 15.20 against the USD.. Whether it breaks this level is yet to be seen, the Rand is oversold on a technical basis.

3. The ZAR and emerging market currencies weakened after U.S.-Mexico talks on tariffs and immigration, fuelled broader concerns about global trade hostilities.

4. Fin Min Mboweni and the ANC’s head of economic transformation Enoch Godongwana have been quick to distance themselves from ANC Secretary General Magashule’s “quantity easing” comments or the fact that this will be utilised to fund intergovernmental debt (equally laughable), but Ramaphosa has been conspicuous by his silence.

5. Justifiably, foreign investors have started to question just how much real authority Ramaphosa enjoys and why he hasn’t been able to reign in the ANC’s Secretary General from making comments on matters he clearly knows nothing about.

PORTFOLIO POSITIONING

The Optimum portfolios have a healthy exposure to offshore markets. The portfolios will benefit from a weakening ZAR and the weakening ZAR also helped our local equity market moved into positive territory. At the current exchange rate we would prefer to sell USD instead of buying.

Clients must be careful to make emotional decisions after the currency has depreciated. Currently, the ZAR is oversold.

by Francois Botha, Chief Investment Officer