The title of this week’s article refers to a comment made by a Coronation Fund Manager in reference to the indiscriminate firing of Minister Nene by President Zuma and then the subsequent reversal four days later when Des van Rooyen was replaced by Pravin Gordhan as our Minister of Finance.
The reference to “you cannot unsee what has been seen” speaks directly to risks and fragility of current government policy; that said has the market already forgotten Nenegate? December the Rand / $ topped R 16.88 vs. today’s rate of R 13.43, which is a 20% recovery.
The current Rand strength has been ascribed to the peaceful municipal elections, however the main driver of current Rand strength is global investor appetite for emerging markets in general and in particular our bonds, which offer investors a juicy return relative to low / zero interest rates globally. The concern is that this is overnight money, here today and gone tomorrow. Our economy is dependent on these foreign flows to balance our budget and current account deficits.
The weaker Rand has weaved its magic reducing the current account deficit as imports have slowed and exports have grown. However, this has been more a function of the lower $ oil price and weaker consumer demand than structural changes. Exports volumes have not improved only the Rand amount as commodity prices have picked up from oversold levels. The Rand remains vulnerable to local and external shocks.
For investors who have become used to the tail wind from the weaker rand the recent rand strengthen has resulted in rand losses on direct offshore holdings, as well as affecting the earnings and share prices of dual listed or rand hedge shares. For the economy though the recent rand strength is a positive, which should help contain inflation and ward off any further interest rate hikes.
I am not so sure the Coronation Fund manager is right when he says that “you cannot unsee what has been seen”. Investors are prone to Short-Termism, we forget very quickly the lessons of the past, easily caught up in current sentiment, which we allow to unduly influence our decisions. No better example than the wall of money, which poured out of SA at R 16/$, which I am quite sure has slowed now at R 13/$.
The appropriate amount to have invested offshore depends on individual investor circumstances and long-term planning objectives. Speak to your Certified Financial Planner.
Mcomm, CFP®, HdipTax
T. 021-851 3746