Rand battered by concerns over economic growth of the Red Dragon

THE RAND opened the week on a backfoot yesterday as it weakened to a one month low, tracking above R15 to the dollar, its weakest level in a month battered by seismic events in China, the looming US tapering and rising oil prices.

Investors have been worried about a halt in China’s economic growth and state authoritarianism, heightening regulatory restrictions on consumer and tech businesses.

Oil prices rose for a fifth straight day yesterday with Brent heading for $80 (R1 193) a barrel, with forecasts indicating it could reach $90 a barrel by year-end, amid supply concerns as demand picks up.

On these concerns, the rand weakened to touch R15.08 to the dollar earlier in the day, but pulled back to R14.97 by 5pm.

FXTM’s senior research analyst Lukman Otunuga said the rand depreciated against every single G10 currency yesterday, thanks to Chinese growth concerns and soaring oil prices.

“With oil prices jumping to their highest levels in three years, this is bad news for South Africa which is an oil-importing nation,” Otunuga said.

“In regards to China, it is South Africa’s biggest commodity buyer. Should slowing growth in China result in a drop in demand for South Africa’s commodities, this may present downside risks to the economy.”

Otunuga also said should the US policymakers offer more insight into the tapering timeline or strike a hawkish tone, the rand may extend losses against the dollar and other G10 currencies in the week ahead.

China’s clampdown approach on cryptocurrencies and gaming has been cause for concern for investors in the tech industry

Evergrande has also sparked concerns around their shadow banking system again as the Chinese conglomerate property developer failed to pay interest in one of its bonds as it now has a mounting $300 billion (R4.474 trillion) worth of liabilities.

Anchor Capital’s co-chief investment officer Nolan Wapenaar said Evergrande was clearly in distress and there were likely further pockets of stress to be seen.

“This is spilling over into a risk-off sentiment towards emerging markets and the South African rand, along with domestic assets, are victims of the negative sentiment,” Wapenaar said.

“The recent meeting of the US Federal Reserve’s Federal Open Market Committee does not help and while it is not the immediate cause of the South African rand sell-off, it does create a negative overhang for markets.”

Investec chief economist Annabel Bishop said in spite of China, a slew of factors were creating rising risk aversion in financial markets and the rand was likely to remain volatile.