+27 (0) 21 205 1980 info@domisa.co.za
FSP No 47661

James Mckeown, director of Domisa Treasury shares weekly market updates, along with his current view on the South African market.

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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?

  Current Levels        
  12-Mar-21 12-Mar-20 23-Apr-20
  Spot Rate Spot Rate vs 12Mar21 Spot Rate vs 12Mar21
USDZAR 14.9493 16.2484 -8.00% 19.0900 -21.69%
EURZAR 17.8700 18.3036 -2.37% 20.6000 -13.25%
GBPZAR 20.8112 20.828 -0.08% 23.5900 -11.78%

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 “3rd 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.

About the author

James is founder and director of Domisa Treasury, a regulated intermediary and treasury outsourcer. He has 25 years broad financial services, banking and leadership experience with premier institutions across Europe, Asia and the US. After returning to South Africa in 2015 James founded Domisa to assist SMMEs and individuals in managing cross-border commerce and foreign exchange. James lives in Cape Town with his wife, three kids, a dog and a rabbit.

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