Click here to view our updated FAIS disclosures, and click here to view our fee schedule – there are no changes to the fee structure. We remain the only provider to publish live, accurate, real-time client prices to the general public at www.domisa.co.za – markups are calculated from the global interbank rate.

Market Update

ZAR has recovered to levels stronger than just prior to the national Covid-related lockdown (12Mar20) and a substantial recovery off the lows of Ramaphosa’s 23Apr20 speech. The JSE Top 40 index has gained 55% and the 10yr bond 27% over the same timeframe. Let’s assume ZAR and SA Assets are fairly priced at current levels.

What to expect from here?

We feel there’s a strong chance of more to come actually.

On the global front, commodities are on fire across the board (GSCI up 76% year-to-date), playing to South Africa’s strengths. In fact, mining brought R100bn in additional (and unexpected) tax revenues per the 2021 budget allowing for a slight reduction in personal tax rates.

Global markets are fearful of interest rate rises in the US with Treasury Bonds selling off sharply (increasing yields) and equity markets reacting negatively with a small sell-off and signs of rotation out of tech into financials and value. We cannot see an alternative to the Fed implementing Yield Curve Control (Quantitative Easing’s ugly cousin) where they print USD to create demand for (buy) US Treasuries, thereby lowering yields to a target range. Very USD negative. Make no mistake though a sell-off in global markets will be ZAR negative.

We, however, feel the Fed has no option but to keep blowing this bubble and let inflation run for now. Equities are the best inflation hedge and as long as positioning is “risk-on” and equity markets keep running ZAR will continue its current path stronger.

Domestically, well no change really – Eskom load-shedding, progress slowly being made in bringing corrupt politicians and business-people to book, additional corruption being discovered. Fears of a “3^rd wave” of Covid as SA heads into Autumn and Winter. Slow progress on the vaccine but interestingly Discovery estimating that up to 50% of the population may already have had Covid.

Remember, the Emerging Market pendulum swings steeper in both directions versus Developed Markets. Too many conversations we’ve been having with clients are centred on their view that ZAR is overvalued here and cannot get stronger.

That ZAR and SA assets continue their run of strength from here is a strong possibility, that is our message. Sub-13 to USD and sub-15 to EUR quite possible. We love GBP and the UK right here, but that’s another story!

May you live in interesting times they said………the only thing we can guarantee you is continued volatility I’m afraid. A significant resurgence globally in Covid remains the greatest threat to global markets, Emerging Markets would be most aggressively sold once again should that happen.

Monitor and manage your cross-currency positions, make full use of your foreign currency accounts (FCA / CFC) and remember we’re only a call or email away.

Contact Domisa Treasury

Please do not hesitate to contact Domisa on +27 21 205 1980 or via the form below , should you have any queries or transactions.

The post Market Update | 12 March 2021 appeared first on Domisa Treasury.

Levels at the time of writing: USD 15.48; EUR 18.32; GBP 20.40

ZAR is stronger by 18%, 11% and 13% versus mid-April against USD, EUR & GBP respectively – a performance that puts it near the top of the list of best performing emerging market currencies globally over a 6 month time-frame. The SA stock and bond markets have put in equally strong performances on the back of significant inflows.

Global optimism related to virus vaccine test results along with the US election (almost) result spurred markets into a more ‘risk-on’ stance moving away from the safe-havens of USD, CHF and JPY.  No real surprise that South African assets got bid up along with most emerging market and commodity-based peers, given the significant levels of undervaluation that were in place.

Bipartisan divisions in the US congress make a substantial support package far less likely in the near future, with ‘near-zero’ interest rates almost guaranteed for the foreseeable future – very USD negative. Watch for news around any type of stimulus and COVID-19 containment measures from the new (almost) administration. De-escalation of the global tariff wars Trump has been waging should be positive for emerging markets.

Domestically, South Africa moved to Alert Level 1. The virus is showing a strong inverse correlation to temperature and, with the arrival of Summer, perhaps SA gets a window of opportunity to keep it contained until any vaccine/s become available mid to late 2021.

Travel restriction ‘Red List’ has been removed and inbound travelers from any country are allowed into SA ‘subject to certain protocols and the presentation of a negative COVID-19 certificate’. Perhaps a little too late to save the international inbound holiday season but progress nonetheless.

With the onset of Winter in the US and Europe and a ‘second wave’ of the virus escalating expect downbeat Q4 and Q1 numbers from there before a vaccine / weather induced recovery in Q2. Perhaps a long trip to SA is the best idea……..and buy a flat or house – they’re cheap by any standards!

Good vs Evil epic battle playing out daily in front of our eyes. Difficult to keep track of the number of corruption cases / Hawks investigations / denials / supercars & mansions confiscated – but it’s fair to say that thus far good seems to be prevailing. The wheel of justice is turning slowly but its certainly turning – VBS / Estina / Eskom / Transnet / SAA – all under the spotlight along with some very powerful alleged perpetrators. Hopefully orange overalls at some point!

As always, stay well-balanced and manage exposures / cross-currency cashflows closely. Although the extreme nature of ZAR’s undervaluation is resolved we continue to see room for gains as sentiment improves and global appetite for risk strengthens.

Please do not hesitate to contact Domisa on +27 21 205 1980 or via the form below , should you have any queries or transactions.

The post Market Update | 15 November 2020 appeared first on Domisa Treasury.

Levels at the time of writing: USD 17.61; EUR 20.80; GBP 23.05

Government is corrupt and occupied largely by inept, self-serving individuals with no goal or objective other than self-enrichment (via family members who all happen to be accomplished business people). Municipalities and SOEs are drowning in debt, overstaffed and under-skilled. The education system is held hostage by unions who merrily trample over the rights of children in the chase for power and influence. Add to this the irrationality of aspects of the lockdown which are causing unnecessary economic damage, particularly when viewed alongside the nonsensical accommodations afforded vote-wielding sectors of the business and union community.

What’s new though?

That’s the point – these are all known knowns. There’s not a piece of new news or information suddenly adding to the heavy load we are already carrying in SA. SA’s asset is its resilient and highly entrepreneurial private sector. It has survived many decades of misguided government in many guises and will do so again. No doubt there is currently a degree of hibernation with Covid-19 and its implications, which SARS are flagging in significant revenue shortfalls (known known).

The condemnation of recent Covid-related corruption allegations has been swift and ear-shattering and, most importantly, from all sections of society. The threat from the voting booth is the only consequence which will drive action. Let’s see.

In short, we don’t even need good news we just need news that’s not quite as bad. August continues its form as a bad month for emerging market currencies.

Overall we struggle to envisage news-flow that darkens the clouds over SA & ZAR any further. As one of SA’s biggest exports gold above $2,000 should provide a solid backstop to ZAR.

• USD weakness: US economic outperformance of recent years has driven significant USD strength. US mismanagement of the Covid pandemic and the forthcoming election uncertainty are leading to questions about sustainability, favouring other currencies recently. Between March and today GBPUSD has rallied from 1.15 to 1.31 (14%), EURUSD from 1.08 to 1.19 (10%). USDZAR at 17.61 is actually flattering
• EM weakness: TRY, ZAR & BRL have been significant underperformers in global currency markets. Global risk aversion is strong with US-China tensions exacerbating the impact on emerging market currencies generally
• SA Govt bonds: Currently yielding 9.3%, with inflation around 4% and the repo rate at 3.5% (lowest since 1998 after SARB has lowered by 300bps this year). Prime lending rate is 7%. Your Mercantile ZAR accounts currently pay 4% pa on cash balances with immediate availability
• Residential property: In line with estate agency news flow we have seen a small increase in foreign buyer activity in residential real estate with ZAR weakness and a “buyers market” making for attractive assets. As a treasury service we manage local payment of bills and invoices on behalf of our foreign owner clients, depriving them of the joys of dealing with Telkom and the municipalities.

Tough to make a call in this market. Keep portfolios well-balanced, exposures managed and a strong handle on cross-currency cashflows. Don’t under-estimate the risk and things may get better from here.

Please do not hesitate to contact Domisa on +27 21 205 1980 or via the form below , should you have any queries or transactions.

The post Market Update | 07 August 2020 appeared first on Domisa Treasury.

Levels at the time of writing: USD 18.70; EUR 20.35; GBP 23.32

• SARB cuts repo rate: by 100bps to 4.25% in revising the 2020 growth forecast to a contraction of 6.1% versus the January projection of 1.2% growth. More cuts to come

• Treasury is “open-minded” in seeking external assistance: from World Bank / Development Bank – “We are talking to them about it. We are looking for programmes not accompanied by any structural reform programmes,” – a nod to the internal ANC politics, heavily weighted against “external” reforms which would impact the civil service & labour

• SAA / SA Express: “More clarity on the proposed closure of SAA & SAX will be provided following the cabinet briefing tomorrow” – referring to today. Government has turned down a request for R10bn in additional assistance, made by SAA in early April. As expected, the situation is forcing tough decisions in the SOE space that likely should have been made some time ago

• Market reaction: USDZAR sold off to 18.70 from 18.00 in reaction

• Global: (& particularly US) markets continue their relentless rally, now having recovered 50% of the initial drop. On the face of it it’s almost inconceivable given the jobless numbers, forthcoming Q1 earnings releases & statements, until we understand the details around the unprecedented actions the Fed has been taking in the open markets (https://www.newyorkfed.org/newsevents/speeches/2020/log200414) . Lets see what this morning’s Retail Sales numbers bring……

• South Africa & ZAR remain fragile: volatility and weakness will stay in the very near term. ZAR is the worst performer vs USD year-to-date as the below chart indicates, many Emerging Market compatriots keeping us in close company however. ZAR continues to be significantly undervalued, particularly vs USD. We continue to wait for the quantitative catalyst to bring calm to the markets – its only at this point we expect the valuation gap to close

Please do not hesitate to contact us, should you have any queries or transactions.

The post Market Update | 15 April 2020 appeared first on Domisa Treasury.

Levels at the time of writing: USD 18.03; EUR 19.61; GBP 22.40

Since our last update USDZAR has round-tripped from 18.26 to 19.35 and back to its current level of 18.03. During the same period the S&P500 has added 11%, yes 11% in just 5 business days! As we’ve expected, increasing global risk appetite immediately closes the undervaluation gap on ZAR.

That’s comforting but we don’t believe in this rally in global asset prices. Bear-market short squeeze, FOMO, whatever else – the market is reading too much into very loose (improving) numbers around the virus and translating it into expectations as to when the global economy gets back to work.

In terms of the catalyst we’re waiting for this is not it in our opinion. Volatility and weakness will continue for global, SA assets and ZAR as the reality of jobs numbers and forthcoming earning reports bites.

It’s certainly true that equity markets will ultimately provide an excellent hedge against the inevitable inflation as a result of central bank free money but that position is premature right now in our opinion. We expect weakness & extreme volatility in the very near term – this bear-market bounce is overextended and heavy selling will likely follow.

Be on the look-out for today’s initial jobless claims out of the US. The range of expectations is between 4 and 9 million – a clear indication of how much remains unknown.

Please do not hesitate to contact us, should you have any queries or transactions.

The post Market Update | 09 April 2020 appeared first on Domisa Treasury.

Levels at the time of writing: USD 18.26; EUR 19.98; GBP 21.22.63

• US markets close down 4.5%, ZAR & EM currencies weaker: ZAR & BRL both posted all time record lows against the USD. USD was bid up along with safe-haven assets as the worst global manufacturing data since 2009 highlighted the deep impact of the shutdown on global GDP. With Donald Trump warning of a “horrific” couple of weeks to come it’s becoming clear to the market that the disruption will be deeper and longer in duration than previously anticipated

• Risk perception and volatility remain highly elevated: In the absence of firm quantitative data points with respect to the pandemic any estimates of future earnings remain guesswork and efficient price discovery impossible. Volatility will remain high until this meaningful data becomes available. Whilst the markets have shown some sense of consolidation with volatility easing slightly from its extreme highs this needs to be discounted by the end of Q1 window-dressing. Until a degree of stability returns to global markets Emerging Markets and ZAR will continue to suffer exaggerated impact of risk aversion    

• Fitch downgrades SA Banks: ABSA, FirstRand, Investec, Nedbank and Standard Bank all downgraded to BB negative with a negative outlook – “We believe the South African operating environment is particularly exposed to the pandemic because of its highly dense and vulnerable communities, and heightened macro-economic risk from falling commodity prices, disruption to tourism, mining activity and manufacturing, as well as pressure on the country’s public finances.”

• ABSA Purchasing Managers’ Index [PMI]: experienced the weakest quarterly performance since 2009. The index tracking expected business conditions in 6 months’ time fell in March 2020 to below the lowest reading recorded during the 2008/09 global financial crisis and, in fact, the lowest level on record. This means that the worst is yet to come for the manufacturing sector

• SA vehicle sales crash: Naamsa – “New vehicle sales statistics for March 2020 reflects a substantial decline of 14 150 units or 29,7% from the 47 695 vehicles sold in March last year to the aggregate domestic sales of 33 545 units in March 2020. Equally, export sales at 28 883 units also registered a huge fall of 7 905 units or a decline of 21,5% compared to the 36 788 vehicles exported in March last year. The performance of vehicle exports over the course of 2020 is linked to the duration of the Covid-19 pandemic and its impact on the global economy.” To South Africa the vehicle industry represents 30% of manufacturing output, 14% of exports and 450k formal jobs (direct & indirect). April figures will demonstrate the full impact of the virus on the industry

• ZAR remains deeply oversold, but vulnerable: along with SA assets in general ZAR remains deeply undervalued. Bond yields north of 10% and ZAR at current levels will not last once appetite for risk re-emerges, which will not happen until quantitative data around the extent and duration of the global economic damage is available. Developed markets, and the US markets in particular, need to find a firm footing before significant appetite for Emerging Market carry & yield return. It’s at this point that SA assets & ZAR represent incredible value. Keep a lookout for that / those catalysts. Until then SA & ZAR face further volatility and weakness

Please do not hesitate to contact us, should you have any queries or transactions.

The post Market Update | 02 April 2020 appeared first on Domisa Treasury.

Levels at the time of writing: USD 17.62; EUR 19.62; GBP 21.88

• QE in South Africa: on Wednesday, the SARB stated that it would purchase an unspecified quantity of government bonds in the secondary market, in order to improve liquidity. This is unusual for a high-yielding Emerging Market. Given that South Africa’s budget deficit had been expected to rise to a 3-decade high of 6.8% prior to the Coronavirus outbreak, the SARB arguably had little choice but to embark on this program, particularly with bond yields in South Africa rising sharply as risk sentiment deteriorated. On announcement of the program foreign investors posted the largest net purchases of SA debt after a month of significantly reducing exposure

• Risk perception and volatility remain highly elevated: US jobless claims data for the week ended 21 March hit an all-time high of 3.3mn, reflecting the extent to which the COVID-19 pandemic has brought economic activity in the world’s number one economy to a grinding halt. The lack of meaningful real-time data on the pandemic and its economic impact is fuelling explosive levels of risk aversion, particularly in riskier Emerging Market assets. Price discovery remains elusive

• USD weaker, ZAR underperforms: the rand was one of the worst performing EM currencies trading down against a much weaker USD, following US jobless data. This was due to concerns over SA entering national lockdown and the pending Moody’s credit review

• Moody’s Rating: on Friday evening Moody’s finally joined the 2 other major rating agencies by downgrading SA government debt to sub-investment grade (“Junk”) status. This was inevitable with negative watch having been in place, already significant fiscal challenges prior to the COVID-19 pandemic and the additional economic impact of the pandemic itself. The only question was whether Moody’s would actually issue an update given global circumstances

• Market reaction to downgrade: whilst USDZAR sold off to 17.63 in late trade on Friday, the full market reaction to the downgrade will be evident this coming week. Given that Moody’s are the last of the 3 agencies to downgrade, the degree to which foreign funds have already sold SA assets as a result of the pandemic and SARB’s QE backstop, the downgrade is unlikely to be material

• ZAR remains deeply oversold: along with SA assets in general ZAR remains deeply undervalued. Bond yields north of 10% and ZAR at current levels will not last once appetite for risk re-emerges. The stampede into the perceived safety of USD has slowed with the dollar trading weaker against most global currencies in the past week, on the back of a $2trn economic support package from the Federal Reserve and verbal commitment to virtually unlimited future support should it be required. Global economic damage from the pandemic is extensive, of that there is no doubt. The extent and duration of this damage are key inputs to the market being able to efficiently price risk. Be on the lookout for a catalyst in these areas that will bring increased calm to the markets and trigger a global recovery

• South Africa & ZAR remain fragile: volatility and weakness will stay in the very near term.

Please do not hesitate to contact us, should you have any queries or transactions.

The post Market Update | 29 March 2020 appeared first on Domisa Treasury.

Levels at the time of writing:  USD 17.39; EUR 18.70; GBP 20.64

• SARB cuts rates (19 Mar 20) aggressively to 5.25% with barely any movement in ZAR or bond yields, fears of significant negative response unfounded indicating the change was priced into the market

• Bond Market barely operating, Market Makers no longer obliged by Treasury to make prices. Abnormal situation indicating significant technical market issues at play. Talk of prescribed assets to create demand for SA bonds to calm the market and safeguard the fiscus  

• Risk perceptions highly elevated, pricing risk in this globally distorted environment is not possible

• USD demand as safe-haven has created a global shortage, which has led to it surging against all currencies globally (essentially a giant “short squeeze”). Central banks are making coordinated efforts to bring this under control as it is exacerbating dislocations across all financial markets

• ZAR losses vs USD are 10% in the past month. All 24 EM currencies are down vs USD with BRL, COP, RUB & MXN suffering greater losses than ZAR. Commodity based economies selling off the most along with commodities. SA’s deficit spending in recent years adds further fuel to ZAR’s fire

• ZAR is deeply oversold per fair value calculations, approaching extreme levels of 30% undervaluation. Previous occurrences of similar levels were 9/11, 2008 financial crisis and “Nenegate” in Dec15. 9/11 reached 45% undervaluation. Whilst there is certainly room for further weakness there is no doubt that South African assets and ZAR represent incredible value at current levels

• The virus will inevitably run its course, vaccine development progressing at the fastest pace on record and treatment methods improving virtually by the day. Be on the lookout for a catalyst that will bring increased calm to the markets and trigger a global recovery, the reversal in SA markets & ZAR will be substantial

• South Africa & ZAR remain fragile, volatility and weakness will stay in the very near term

Please do not hesitate to contact us, should you have any queries or transactions.

The post Market Update | 20 March 2020 appeared first on Domisa Treasury.