Predicting anything over the short term is nuts, you may as well resort to reading tea leaves, and the investment banks know this but they still do it. However over a longer period of time usually the data will start to show a consistency, and I choose my words carefully since I do not believe in patterns. When it comes to finance we like to talk in periods of at least 20 years, usually longer. Having said that, we still like to look at short term indicators. I have written about the Rand before, here and here . I specifically stayed clear of predicting a level for the Rand, other than to say that there are factors that will lead to a steadily declining value, and to avoid your financial assets incurring a relative loss, you need to diversify. I continue to stand by these comments.
With the Rand now hovering around the 8.50 to the USD level, it is a fantastic opportunity to move your money into USD.
Yes, I know the USD may weaken further (arguable), but the US still have the majority of innovative investment products by far, which allows you to optimally diversify your portfolio.
Following article by Garth Theunissen
South Africa’s rand may give up its 2009 gain by year-end as the global economic slump and domestic unemployment stymie the investment inflows needed to finance the country’s current-account deficit, according to Morgan Stanley.
The rand is “overvalued and is likely to depreciate in coming months,” Johannesburg-based analyst Michael Kafe wrote in a research note e-mailed yesterday. “Heavy reliance on portfolio flows” to finance the deficit on its current account, a measure of trade in goods and services, makes the rand “highly susceptible” to changes in risk sentiment, Kafe wrote.
South Africa’s currency may weaken to 9.80 per dollar by year-end, a 12 percent decline from 8.6052 as of 2:59 p.m. in Johannesburg, according to the note. That’s still stronger than the U.S. bank’s previous prediction of 10.80.
The rand has strengthened 11 percent against the dollar this year, making it the best performer of the 16 most-actively traded currencies monitored by Bloomberg, as investors boosted purchases of high-yield assets on speculation the worst of the global financial crisis is over. Foreign investors have bought almost 32 billion rand ($3.7 billion) more than they sold of South African assets this year, according to data from the nation’s bond and stock exchanges.
Those inflows may reverse as hopes of a global economic recovery prove to be “no more than a distant dream” and job losses in South Africa limit chances of a recovery in the continent’s biggest economy, making the country’s assets less attractive to overseas investors, according to Kafe.
The $278 billion economy shrank 1.8 percent in the fourth quarter and the International Monetary Fund predicts it will shrink by 0.3 percent in 2009.
‘Major Risk’
The nation relies on foreign purchases of its stocks and bonds to finance the shortfall on its current account and prevent the rand from weakening. The gap reached 7.4 percent of gross domestic product last year, and will narrow to “about 6 percent” of GDP this year, Morgan Stanley predicts.
“The current account deficit remains a major risk to the currency,” Kafe wrote.
Last year the rand slumped 28 percent, making it the worst performing emerging-market and major currency, as foreign investors sold a record 70.8 billion rand ($8.4 billion) of South African nation’s stocks and bonds amid the global financial crisis, data from the country’s equity and bond exchanges, the biggest in Africa, showed.
“The recent spate of job losses should cap disposable incomes and keep the South African consumer in recession,” Kafe wrote. “We remain rand bears but are less bearish than before.”
Unemployment
Increasing joblessness may exacerbate the slowdown in South Africa, where consumers account for about two-thirds of the economy. As one of the more widely traded emerging-market currencies, the rand is often viewed as a proxy for investors’ appetite for risk.
South Africa’s unemployement rate rose to 23.5 percent in the first quarter, the highest of 62 countries tracked by Bloomberg, as a worldwide recession crimped demand for the nation’s commodity and vehicle exports, forcing mines and factories to fire staff.
Morgan Stanley expects the rand to average 9.50 per dollar in 2009 and 10 the year after. It may fall to 10.20 by the end of 2010, the brokerage predicts.
2 Opinion(s):
I you are going to move your money keep it in Chinese Yuan or Japanese Yen which is far more stable than the US dollar. The USD is simply put overvalued as the US is in essence being kept afloat by the Chinese government buying US bonds.
Yes, the US dollar may be overvalued. No, the laternative currencies are not necessarily more stable. Finally, all traded financial products have a departure point, this is invariably USD. If you are a trader, you should know this.
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