Nicola Mawson
South Africa’s currency and the markets are setting new highs as global markets move to riskier assets in response to the US Federal Reserve (Fed)’s rate cuts, China seeking to stimulate its moribund economy, local sentiment gains, and the South African Reserve Bank’s (SARB) recent 25 basis points cut in the interest rate.
The JSE all share index rose more than 1.4% to an intraday record of 86 145 points, marking its fourth consecutive day of gains, before closing at 85 943 points by 5pm.
Resource-linked stocks and industrials were among the top performers, led by Kumba Iron Ore, Anglo American, and South32, bolstered by China’s wide-ranging stimulus measures, along with tech giants Naspers and Prosus.
The rand hit a one-year high of R17.13 to the greenback, before settling somewhat at R17.20 by 5pm and having closed at R17.25 on Tuesday. Gold also hit a fresh high of $2 660 per ounce.
Jimmy Moyaha, founder and managing director of Lebowa Capital, told Business Report that several factors to benefit the currency and the markets are seemingly coming together “at just the right time”.
“SA Inc has all the makings of a comeback kid, and, while the economy is not out of the woods yet, we are seeing light at the end of the very dark tunnel and things are not looking as bleak as they were before,” Moyaha said.
Moyaha also said the rand was a “politically sensitive currency”, and was now benefiting from a peaceful and historic election outcome, constant electricity supply, and more effort being put towards addressing the systemic issues that have plagued the country.
“Bringing this risk premium down has made South Africa more attractive to capital, as part of that is seen in the currency strength.”
Local equities, Moyaha said, were up on several factors, including stimulus in China as that government seeks to grow the economy, which includes property sector support as well as lending rate cuts.
“When markets opened yesterday morning, it was clear that mining stocks benefited most from the boost in sentiment, the resources index trading up 2.5% within the first hour of trading,” he said.
This, Moyaha explained, could be due to expectations that Chinese demand will increase, benefiting local commodities.
Peter Takaendesa, head of equities at Mergence Investment Managers, said the local “stock market is enjoying a strong recovery in 2024 after years of underperforming other key global equity markets, especially the American and Indian markets”.
Takaendesa told Business Report that equities are benefiting from a combination of improved domestic economic prospects and a largely supportive global equity markets environment.
The new administration has also “renewed optimism that structural economic reforms will gain momentum”.
He said that the global economy has also defied bearish growth forecasts and avoided a recession so far, despite very aggressive interest rate hikes over the past few years.
“Consensus is now that a soft landing of the US economy is the most likely outcome given a strong consumer and the recent initiation of the interest rate cutting cycle,” Takaendesa said.
Any policies that aim to boost China’s economy typically raise expectations for increased trade between China and South Africa, which supports the rand, noted Andre Botha, head of execution at TreasuryONE.
“The rand performed well in September, trading below its fair value, which was around the R17.50 level, partly due to a weakening dollar driven by the Fed’s policies and China’s economic efforts. The rand may continue to strengthen but could see a short-term pullback,” he said.
Old Mutual Group chief economist, Johann Els, also told Business Report there was currently a lot of local optimism, with the dollar expected to slip further as the Fed was anticipated to keep cutting rates, while lower petrol prices and demand pressure bodes well for local interest rate cuts.
Els added that the stimulus “surprises” from China on the back of lower US interest rates “impacts on emerging market policy support, takes pressure off emerging market currencies and allows emerging market central banks to stimulate economies”.
“Overall, there is optimism; consumer sentiment, business confidence and also reduced political risk. So, the rand is likely to strengthen even further,” he said, pegging it at about R14 to R14.99, potentially within the next six months.
Moreover, Els said he anticipated more good news in the form of a 50 basis point cut in late November, at the SARB’s last policy meeting of the year, given that inflation will be around 3% by the time of the meeting.
BUSINESS REPORT