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