Bloomberg News

Rand Gains as G-20 Debt Talks Spur Demand for High-Yield Assets

October 14, 2011

Oct. 14 (Bloomberg) -- The rand advanced, set for its best weekly gain since July, as prospects the Group of 20 will increase funding to stem Europe’s debt crisis improved investor appetite for South Africa’s higher-yielding stocks and bonds.

The currency of Africa’s biggest economy climbed 0.6 percent to 7.8527 per dollar by 4:09 p.m. in Johannesburg from yesterday’s London close of 7.8968, taking its gain this week to 1.9 percent, the most since the five days ending July 1. The rand has appreciated 3.1 percent this month, paring a 16 percent slump in the third quarter, the most out of 16 major currencies monitored by Bloomberg after Brazil’s real.

Foreign investors have bought a net 5.9 billion rand ($753 million) of South African stocks and bonds since Oct. 1, according to the JSE Ltd., reversing an outflow of 28 billion rand in September, when the rand weakened 14 percent. G-20 policy makers are discussing boosting the International Monetary Fund’s lending resources, according to three officials, who declined to be named as the talks aren’t public.

“As the overall risk of exposure to the euro zone dissipates, a general reduction in risk aversion will stand emerging-market currencies in good stead,” Tradition Analytics strategists led by Johannesburg-based Quinten Bertenshaw wrote in a research note. “Portfolio flows play a massive role in the performance of the rand and any signs that these flows are returning would be significant in helping the local unit stage a meaningful recovery.”

Spain Cut

Trade in the rand is likely to remain volatile after Spain’s credit rating was cut for the third time in three years by Standard & Poor’s and ahead of today’s meeting of G-20 finance ministers in Paris, John Cairns and Nema Ramkhelawan- Bhana, currency strategists at Rand Merchant Bank in Johannesburg, wrote in a research note.

“The short-term risks to the dollar-rand are to the topside but once stress eases, the rand can claw back its losses,” they wrote.

The rand stayed stronger after U.S. retail sales rose more than forecast in September, easing concern the world’s biggest economy is stalling.

South African bonds rose on speculation the stronger rand will give the central bank room to cut interest rates to bolster growth, even as consumer prices rise. The yield on the 13.5 percent notes due 2015 dropped four basis points, or 0.04 percentage point, to 6.70 percent. The notes are set for a third week of increases.

“The rand benefited substantially over the last week from an improvement in risk appetite,” BNP Paribas SA analysts led by London-based Bartosz Pawlowksi wrote in a research note. “A stabilization of the dollar-rand at about 7.80 could boost the Reserve Bank’s ability to deliver a rate cut at its next meeting” on Nov. 11, they wrote.

Repo Rate

Governor Gill Marcus kept the repurchase rate at 5.5 percent last week and said the Monetary Policy Committee was “ready to act” if the economic crisis in the U.S. and Europe threatens to derail growth in the largest economy in Africa.

“Governor Marcus has been particularly dovish recently and remains very worried about both the euro zone crisis and the lack of domestic demand in South Africa,” the BNP analysts wrote. “While inflation is expected to exceed the target by year-end, we think the Reserve Bank could begin to place more emphasis on the bleak growth outlook.”

--With assistance from Stephen Gunnion in Johannesburg. Editors: Ana Monteiro, Alex Nicholson

To contact the reporters on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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