Bloomberg News

Sell South African Rand for Mexican Peso, SocGen Advises

January 09, 2012

(Updates with analyst’s comment from third paragraph.)

Jan. 6 (Bloomberg) -- Investors should sell the rand for Mexico’s peso as Europe’s debt crisis will hurt South Africa’s currency while the U.S. economy recovery will help the Latin country, Societe Generale SA said.

SocGen is advising clients to sell rand at 1.6840 pesos, with a target of 1.6300 and a stop-loss at 1.7160, Guillaume Salomon, a London-based analyst at the French bank, said in an e-mailed note.

“We believe that the outlook in Latin America, particularly in Mexico, is much more favourable than in the euro zone,” Salomon wrote. “In addition, the magnitude of contagion risks is likely to be much less significant in the period ahead for Latin America,”

European confidence in the economic outlook fell to the lowest in more than two years and German factory orders plunged as the euro area’s leaders struggled to contain a worsening fiscal crisis and global demand weakened, reports today showed. The European Union is South Africa’s biggest regional trading partner, accounting for 30 percent of the nation’s trade.

“The market is making an increasing differentiation between emerging markets at the center of the on-going crisis in the euro-zone and other EM regions, in particular Latin America,” Salomon wrote. “The Mexican peso is fundamentally cheap in our view, and is well positioned to take advantage of the positive short-term dynamics in the U.S. economy.”

U.S. employers added 200,000 jobs in December, double the revised 100,000 in November and more than the 155,000 median estimate of economist in a Bloomberg survey. The unemployment rate unexpectedly fell to 8.5 percent, the lowest since February 2009, labor department data showed.

The rand retreated 0.1 percent to 1.6829 pesos as of 3:38 p.m. in Johannesburg, paring its decline against the Mexican currency this year to 2.4 percent. The South African currency retreated 7.5 percent against the peso in 2011.

--Editors: Ash Kumar, Gavin Serkin

To contact the reporter 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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