ARTICLES

The Rand Tanks

13 August 2018 By PDSNET

The rand has collapsed from R13.38 to the US dollar to levels as low as R15.26 – in less than two days. It has subsequently stabilised at around R14.50. South Africans will naturally think that this has been caused by something that the government has done or that President Ramaphosa has said, but in this case they would be mostly wrong. The current weakness in the rand has been caused by a sudden sharp move from risk-on to risk-off by the international investment community – mainly as a result of President Trump’s decisions to impose sanctions on Russia and continue with his trade war, mainly against China. This, combined with the troubles in Turkey, saw both the Russian ruble and the Turkish lira plummet. And that caused a general sell-off of emerging market assets – including those in South Africa. Emerging markets are seen as being the most vulnerable to a global trade war. The yield on the R186 long bond spiked up from 8,68% to 8,85% as foreign investors pulled their cash out of South Africa and put it into safe investments like the US 10-year treasury bill. As sometimes happens, investors suddenly reached a tipping point and then acted swiftly. The problem is that our currency is very vulnerable to this type of shift in international sentiment – because of our political vacillations, our over-indebtedness, and the government’s intention to advocate expropriation of land without compensation. These are negatives for any overseas investor – obviously. Nobody wants to invest in a country where there is even a remote possibility that his investment might be arbitrarily taken from him/her without any compensation. Technically, this spike in the rand/US$ chart is a problem because it takes the rand clearly through its long-term upper channel line:

Rand Dollar Exchange June 2015 to August 2018 - Chart by ShareFriend Pro

As you can see here the upper channel line which has been in place since January 2016 has been convincingly broken. This indicates that there may well be further weakness in the rand going forward. And that changes everything for private investors. Suddenly, investments in rand hedge shares make sense while companies which import from overseas begin to look very shaky. Our advice, however, is that this risk-off phase may not last too long. Trump is renowned for changing his mind about things – and he may be persuaded to change his mind about this. So just wait and watch for a while and make sure that your stop-loss strategy is firmly in place. Footnote: Of course, this weakness of the rand will certainly translate into a further hike in the petrol price as well.

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

Share this article:

PDSNET ARTICLES - AUGUST 2018

The Bull Trend Resumes

A week ago on the 22^nd of August, we suggested in an article that the S&P would break up to a new record high above 2872. It has done that emphatically – rising to another record and breaking above the 2900 level last night to close at 2914. We also suggested in that same article that this would cause our blue chip shares to follow suit

Mental Posture

What separates an effective private investor from one who loses money continuously? The difference is what we call “mental posture”. To be a successful private investor you need to have a good mental posture. But what is mental posture? It is your emotional response to the share market in general – and to your shares in particular. What are you feeling? Because how you are feeling will

S&P Touches Record High

On the 9^th of July 2018 and previously on the 6^th of April 2018 we suggested in articles that the S&P had reached the bottom of its correction at 2581 and found strong support at the level. We also suggested that the strength of that support indicated that the correction

Bitcoin Continues to Unravel

In December last year we ran an article entitled “The Bitcoin Bubble” and there we suggested that the exponential nature of the Bitcoin price was clearly indicative of a bubble and we advised that if you owned them you should sell and if you didn’t you should stay away from them. We published a

The Rand Tanks

The rand has collapsed from R13.38 to the US dollar to levels as low as R15.26 – in less than two days. It has subsequently stabilised at around R14.50. South Africans will naturally think that this has been caused by something that the government has done or that President Ramaphosa has said, but in this case they would be mostly wrong. The current weakness in the rand has been caused by a sudden sharp move from risk-on

Woolies Risk and Gearing

Every investment has risk, because without risk there cannot be an inflation-beating return after tax or any real growth. From a fundamental perspective, risk is usually measured in terms of a company’s gearing – how much debt has it got relative to equity? Or in simpler language - how much money have the shareholders got in the business when compared with what outsiders like banks and creditors have in it. A highly indebted

ArcelorMittal - Buying Opportunity?

The steel industry in South Africa is a very important industry because its production supports so many downstream industries and businesses. For this reason, the government has been sympathetic to ArcelorMittal’s call for tariffs on certain steel products which have been systematically dumped on the South African economy by the Chinese. China is the largest steel manufacturer in the world and has traditionally consumed