The rand is big in Japan right now

Singapore/Tokyo — The lira’s loss is the rand’s gain. Japan’s retail investors are boosting holdings of South Africa’s currency at the fastest pace since 2009, while cutting foreign-exchange exposure in Turkey.

Individual investors from the Asian nation raised their net rand long position against the yen for five straight months to end-June, according to data from Tokyo Financial Exchange Inc. They have been reducing their net lira positioning for four months.

“Japanese investors who cut losses in the lira could have shifted to the rand, given the better political situation [in SA],” said Koji Fukaya, CEO of FPG Securities in Tokyo.

“Emerging-market currencies haven’t been performing well, but Japanese investors have been seeking opportunities to take exposures in high yielders and hold them.”

The dollar’s surge and global trade tensions have saddled emerging-market investors with losses this year. A Bloomberg currency index measuring carry-trade returns from eight developing markets, funded by short positions in the greenback, slumped 8.8% in the April-June quarter, the most since 2011, after rallying for five quarters through March. It has extended losses in July.

Japanese retail investors boosted their net position on the rand by 11% in June to 159,631 contracts, while paring their lira exposure by 2.3% to 233,795 contracts.

Their combined net position in the rand, lira, Mexican peso and Polish zloty is still up almost 27% in 2018, according to Tokyo Financial Exchange data, despite the EM sell-off.

Buying on dips

“Japanese retail investors tend to be contrarians, typically entering to buy on dips,” said Fukaya of FPG Securities. Investors probably bought the rand against the yen as the pair approached the ¥8/R level, Fukaya said.

The preference for the South African currency seems to be stemming from optimism that President Cyril Ramaphosa will be able to turn things around for Africa’s most industrialised economy.

The rand slumped 11% against the yen in the first half. That is much lower than the lira’s 19% plunge.

Investors are still uncertain about how President Recep Tayyip Erdogan will deal with Turkey’s economic problems and what kind of control he’ll wield over monetary policy.

At the same time, its relations with the US remain fraught, with American officials warning that they will impose sanctions on the Nato ally when it receives a Russian missile defence system.

“Japanese investors may be reducing their lira positions on speculation President Erdogan will put pressure on the central bank to lower interest rates,” said Takuya Kanda, general manager at Gaitame.Com Research Institute in Tokyo. “Investors may be turning to SA due to a lack of apparent negative factors.”

Bloomberg