The rand went from treasure to crap

South African businesses have transformed from market darlings to duds.

The rand, bonds and equities had a strong start to the year, benefiting as a relative haven among emerging markets and rising commodity prices spurred by the Russian invasion of Ukraine.

But the feeling has soured.

The nation’s assets have retreated as investors assess the rise in global interest rates after the US Federal Reserve and Bank of England hikes this week. Concerns are also growing over inflation, as well as the increase in Covid cases in China and the restrictions imposed by Beijing to fight the virus for the world economy.

These charts illustrate the reversal in South African markets:

The rand is on track for a third week of low, the longest losing streak since November. Its 8.5% decline over the past month, pushing it past the psychological level of 16 per dollar, makes the currency the worst in emerging markets.

But some analysts, including those at Société Générale and Anchor Capital, believe the losses went too far.

“The support for commodities has not disappeared and South Africa recorded a healthy trade surplus in March,” said Nolan Wapenaar, co-Chief Investment Officer of Anchor Capital. “Rate hikes will also continue to strengthen the rand thesis and we hold our view that the local currency may be able to strengthen again.

And South Africa’s rand debt hasn’t fared much better.

Non-residents were expected to be net sellers of the nation’s government bonds for the first week since March. By Thursday, foreigners had sold R8.6 billion ($ 536 million) of bonds, based on data on regulated transactions by foreign exchange operator JSE Ltd.

Local currency denominated government debt headed for a sixth consecutive week of losses, the worst run in eight months.

South African equities have warned investors’ aversion to risk more outright than their emerging market counterparts, sliding towards the worst weekly slump since October 2020.

The Johannesburg FTSE / JSE Africa All Share Index stepped up this week’s selloff to more than 6%, a steeper drop than the MSCI developing country index, which fell around 4%.

More than 90% of members of the South African benchmark stock indicator were lower on Friday afternoon, helping to make it one of the three worst performers globally this week in dollar terms among the more than 90 major indices followed by Bloomberg

Reading: South African equities take a hit in the worst week since 2020