Business Day Live
Picture: GALLO IMAGES/FOTO24/LOANNA HOFFMAN on Business Day Live
THE rand "flash-crashed" to a historic low of R17.91/$ to the dollar on Monday as more market anxiety in China stoked risk aversion again.
Although it recovered to about R16.65/$ by the close of the local market, it was still the worst performer among 31 emerging-market and major currencies.
The rand’s slide probably came after "a combination of stops and margin calls caused mass capitulation" by Japanese retail investors, said Gareth Berry, a foreign exchange strategist at Macquarie Bank in Singapore, in a research note.
A slump in commodity prices, lacklustre economic growth and rising US interest rates have hammered the rand, which dropped 25% last year.
Losses in the rand accelerated last month after President Jacob Zuma fired finance minister Nhlanhla Nene unexpectedly, while the tumultuous start to the year in China has damaged sentiment further. SA sold 37% of its exports to China in 2014.
"The risk factors have increased since the happenings of December last year," Malcolm Charles, portfolio manager at Investec Asset Management, said. "There’s definitely more of a risk premium demanded for South African bonds and equities. The uncertainty of policy is definitely there."
The JSE all-share index earlier fell 1.3%, before trading nearly unchanged at the close.
Yields on rand-denominated government bonds jumped 12 basis points to 9.67%.
"The huge spike in risk aversion last week, poor liquidity and position liquidation have hit the rand," said Robert Rennie, the global head of currency and commodity strategy at Westpac Banking.
The rand plunged to its all-time low to almost R18/$ shortly after midnight in Johannesburg. Data compiled by Bloomberg showed that offers to buy the rand against the dollar dried up at about 7.04am Tokyo time.
China strengthened the yuan’s reference rate slightly for a second day on Monday after an eight-day run of reductions that sent shock waves through the markets, while swings in local asset prices have revived concern about the government’s ability to manage an economy set to grow at the weakest pace since 1990.
The rand may again test the R17.50/$ level and any rallies in the currency will be short-lived as investors shun developing nations, Standard Bank Group analysts including Walter de Wet and Shireen Darmalingam, said in a note.
SA’s current account and budget deficits were likely to weigh on the currency and the rand’s uncontrolled depreciation may cause the Reserve Bank to raise rates by 50 basis points at its monetary policy committee meeting later this month.
"It is hard to see the rand pull back on a sustainable basis," the Standard Bank analysts said.
"In recent weeks, we have seen SA’s real effective exchange rate fall sharply to levels last seen in 2001 and 2008.
"We note that in both 2001 and 2008, amid a rand slide, the South African Reserve Bank embarked on a fairly aggressive rate-hiking cycle," they said.
Market rumours of further SA and Brazil credit rating downgrades had also negatively influenced the rand, Investec chief economist Annabel Bishop said.
Global stock indices fell again on Monday, continuing a brutal start to the year, as China’s market tumbled again and the decline in oil prices worsened.
The main US indices gave up earlier gains in morning trading that came after the S&P 500 and the Dow posted their worst five-day start to the year in history. The pan-European FTSEurofirst 300 index was off 0.2%, also after rising earlier in the session.
Fears over China’s economy contributed to last week’s declines, and the main Shanghai stock indices each ended down more than 5% on Monday. Perceived missteps by China’s authorities have stoked concerns in global markets that Beijing might lose its grip on economic policy, even as the second-largest economy looks set to post its slowest growth in 25 years.
"The Chinese situation sets the agenda right now in combination with oil prices," said Hans Peterson, global head of asset allocation at SEB investment management.
Emerging-market stocks retreated to the lowest in more than six years and currencies weakened as concern that China’s growth outlook is worsening and a commodity slump drove investors out of riskier assets.
All 10 industry groups in the MSCI Emerging Markets index fell at least 0.8%. A gauge of developing-nation exchange rates declined to a record.
As stocks extended this year’s slide to 8.4%, the worst start to the year since 1998, a measure tracking 20 developing-country currencies fell for a seventh day. Bonds in emerging Europe declined, with yields on five-year Russian debt climbing the most since August.
The MSCI index decreased 1.8% in afternoon trade in London.
"Weak Chinese data are creating more uncertainty and increasing risk aversion towardsemerging-market stocks and currencies," said Jonathan Ravelas, the chief marketing strategist atBDOUnibank. "Most investors also doubt China’s financial markets will stabilise any time soon. Given the volatility, it’s best to stay on the sidelines and remain liquid."
The bearish sentiment spread across the developing world, with the Philippines Stock Exchange index declining 4.4%, bringing its retreat from the April 10 peak to more than 20%, a move that signals a bear market. Measures in Taiwan, Indonesia, Malaysia and South Korea dropped at least 1%.
Latin American assets bucked the downtrend, with Brazil’s Ibovespa ending a three-day rout as buyers took advantage of low valuations. The developing-nation currency gauge fell 0.2% to an all-time low. Its losing streak is the longest since a 10-day loss that ended on August 24.
Russia’s rouble weakened 0.7% against the dollar. The South Korean won fell 1% as global funds pulled out of local stocks amid signs of faltering growth in China, the nation’s biggest export market.
China’s yuan snapped a three-day loss after the central bank kept its reference rate little changed for a second day, fuelling speculation that last week’s bout of weaker fixings has halted for now. Currencies in Mexico and Brazil added at least 0.5%.
The yuan’s interbank rates climbed in Hong Kong as suspected central bank intervention to prop up the offshore exchange rate last week tightened supply of the Chinese currency.