Foreign property investment in South Africa | 

South Africa is a great country in which to invest in property, particularly from now until toward the end of March 2022. With the economy steadily recovering from the Covid-19 pandemic, tourism is picking back up and investors are exploring the option of owning property in sunny South Africa, and for good reason.

The exchange rate is highly favourable for foreign investors and international money transfers to South Africa through Domisa has never been easier. You can expect the best foreign exchange rates along with exceptional customer service.

Here are some points to consider when planning property investment in South Africa, as a non-resident.  

Foreign Property investment in South Africa

Non-residents may invest in South African property.

If there was ever a doubt in your mind on whether you, as a foreigner, can purchase property in South Africa it should be clear by this point in the article.

Not only is it possible, but also a great idea and an incredible financial investment. The South African Rand (ZAR) is considerably weak and it makes it not only easier, but also worthwhile. Luxury property can be purchased with a middle-class budget and maintenance, levies, services, and general upkeep will not break the bank.

At Domisa, we manage the entire process of international money transfers ensuring not only the best foreign exchange rates but also that every aspect complies with the South African Exchange Control Regulations.

It is imperative to have a reliable partner who is in the local area of the property you wish to purchase and that they are reputable and trustworthy.

Domisa will also handle the opening of both local and foreign exchange bank accounts, management, and payment of all local invoices received for such as municipal services, estate levies, maintenance, and all other general services concerning the property.

Although we do not handle the ownership transfer, we make every other aspect of the process stress-free and simple, offering peace of mind that this is, indeed, a great investment.

Local financing is available (mortgage bond) is permitted up to 50% of the price of the property for foreign property investment in South Africa.

Having the details and steering towards taking the plunge into foreign property investment in South Africa, you may begin wondering how you would be able to purchase the property if you are not able to make an international money transfer for the full amount asked for the property.

We have great news. The South African Reserve Bank allows Mortgage Bonds to foreign investors. These mortgages are known as “Bonds” in South Africa and there are different criteria to meet as a foreign investor than if you were a local.

A large deposit is generally required (which would be your International Money Transfer in foreign Currency), but the balance you can mortgage locally. Factors including affordability and the price of the property you wish to invest in are taken into account and determine whether your application will be approved.

It is possible to do this directly through local South African Banking Institutions, Domisa, will be able to guide and advise you on the best ways to approach your mortgage application. We specialise in property investment in South Africa. 

Non-residents may take their funds back offshore via international money transfers following the sale of a property.

When you feel it is time to sell the property you have purchased in South Africa, it is possible to repatriate the funds back home. There are a few conditions, but they are very reasonable and quite simple to meet.

If you have settled your Mortgage Bond in full, the total amount (subject to local Tax) can be repatriated offshore but before the funds are approved for final repatriation, the sale price will be reviewed by the bank, to ensure that the profit on the sale price is not only reasonable but market-related.

If, however, you have not settled the Mortgage bond in full, you will only be entitled to the balance after settling the outstanding amount on your bond.

Another aspect to ensure is properly managed is the safekeeping of all documents relating to the original purchase of the property. Upon application for repatriation of funds offshore, you will need to present all receipts of the deal, the conveyancer’s final statement of all costs, as well as a copy of the agreement of sale to the South African Reserve bank.

The Tax Payable on this amount is referred to as Capital Gains Tax and there is no way to avoid this.

Some aspects can affect the general flow and ease of this process.

At Domisa, we understand, not only just how unnerving it can be to make huge international money transfers, but also how much more the final cost can end up being if you attempt this without the services of an experienced and reliable Foreign Exchange Partner in South Africa. 

Please contact us for a free consultation to discuss your business needs, internation money tranfers and what Domisa Treasury could do to assist you in managing your foreign currency risk in the most efficient and cost-effective manner. Click here to contact us today. 

Want to find out more about Foreign exchange South Africa? Read this article.

The post Foreign property investment in South Africa appeared first on Domisa Treasury.

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.

How Does Foreign Exchange Work?

In layman’s terms, when you are transferring money from South Africa abroad, you are essentially “selling” your domestic currency (South African Rand) and “purchasing” a foreign currency. The Foreign Exchange Transaction can also go in the opposite direction, where you “sell” your foreign currency (be that the British Pound, US Dollars, Euros etc.) and “buy” local currency (the South African Rand).

What Is A Discretionary Allowance?

More on forex in South Africa specifically. Every South African resident over the age of 18 has what is referred to as, “an annual discretionary” allowance of R1’000’000.00. A South African resident may transfer a maximum amount of one million Rand, without having to obtain a tax clearance certificate from SARS (South African Revenue Services).

Foreign Investable Allowance

South African residents wishing to transfer money internationally in excess of one million Rand (in excess of their discretionary allowance) can also make use of their “foreign investable allowance.” The foreign investable allowance amounts to R10’000’000.00 per annum. Application and receipt of
a tax clearance certificate will be needed from SARS, should an individual wish to make use of their foreign investable allowance. SARS tax clearance is not needed for South African residents wishing to make use of their annual discretionary allowance.

The above mentioned discretionary and foreign investment allowances relate to South African resident individuals only. SARS and the South African Reserve Bank (SARB) have different requirements for South African Businesses who wish to make use of international payment solutions or non-resident individuals (non-South African citizens, who are residing in South Africa for work or leisure).

Domisa’s Currency Conversion Process

The exact process of converting your South African Rands to a foreign currency through Domisa, is then as follows:

• Open an account with us (free of charge). Our South African Rand accounts are held with Mercantile Bank and earn a very lucrative interest on your cash deposits.
• Once your Rand account is opened, you will have to deposit funds into it and specify the amount of Rands that you would like to sell or the amount of foreign currency that you would like to purchase.
• Domisa then does the currency conversion for you and instructs the transfer to your offshore account. Domisa can assist you in opening an offshore bank account, should you not have one. Your converted currency will reflect in your foreign bank account within two business days.

Please contact us for a free consultation to discuss your business needs and what Domisa Treasury could do to assist you in managing your foreign currency risk in the most efficient and cost-effective manner.

Foreign exchange South Africa

Forex South Africa | Forex Payments | Forex Exchange

The post An Overview of Foreign Exchange in South Africa appeared first on Domisa Treasury.

In South Africa, as everywhere, going into business from scratch as a startup or running an established business can be a daunting exercise with a host of challenges manifesting themselves alongside the considerable opportunities for success.

If you trade with foreign partners or clients, as an importer / exporter, tour operator / travel company, service provider, consulting or technology business you will have both revenues and expenses in foreign currency. In this article, we’ll explain what a foreign currency account is, and why it is a good idea to have a foreign currency account in South Africa.

Frequently Asked Questions : Foreign Currency Account

As an established Treasury in South Africa, we’ve helped countless businesses with their foreign currency accounts. Through this process, there are a few key questions that are repeatedly asked. In this article, we’ll answer them in a simple, straightforward way.

What is a Foreign Currency Bank Account?

A foreign currency account is simply a bank account for the business denominated in a foreign currency. Businesses with reasonable volumes of such transactions could increase profits by 5 – 15% simply by making them through foreign currency accounts, with a diligently selected provider.

What is a foreign currency account used for?

A Foreign Currency Account (FCA) allows non-resident individuals and foreign nationals to hold funds that originate from abroad and that are freely transferable. These funds can therefore be kept in currency and withdrawn at the client’s convenience. A range of currencies are available in the Foreign Currency Account.

How does a Foreign Currency Account work?

A typical bank account generally converts money to and from US dollars for transactions in foreign currencies. A foreign currency account allows you to send and receive funds in multiple currencies.

Why is this helpful? You save time with a streamlined transaction and money by avoiding the high fees that come with conversions.

Reduce volumes of Forex transactions

Being “on both sides of the spread” is expensive, and unnecessary

A foreign currency account provides the opportunity to receive, hold and pay invoices in that foreign currency without having to convert to or from ZAR for every transaction.

An example

Let’s assume the bank is quoting USDZAR 1% off the interbank rate of 14.50 giving the business a Bid / Ask “spread” of 14.355 / 14.645 (the spread) – I.e. bank will buy USD for ZAR14.355 and sell USD for ZAR14.645

An international client pays the business $20,000 for good or services. The business has associated USD expenses of $10,000, immediately payable.

Business does not have a Foreign Currency Account

• $20,000 receipt converted at 14.355 to ZAR287,100
• $10,000 purchased at ZAR146,650 to pay suppliers
• Remaining Balance is ZAR140,450

• 2 forex transactions
• Client “on both sides of the spread” – selling USD at 14.355 & buying at 14.665
• Client is ZAR3,100 (USD214) worse off 

Business has a USD Foreign Currency Account

• $20,000 receipt credited to USD account
• $10,000 paid to suppliers
• $10,000 remaining converted to ZAR143,550

• 1 forex transaction
• Client is ZAR3,100 (USD214) better off 

A Natural Currency Hedge

Foreign currency accounts provide a natural hedge

Currency hedging is the process of eliminating currency risk from a transaction where multiple currencies are involved.

An international transaction with a perfectly hedged currency position has no prospect of future currency loses or gains, with the success of the transaction then based purely on other core goods / services components.

Whilst some currency hedging techniques can be expensive, foreign currency accounts are perhaps the cheapest and easiest hedge available.

Building on the example

The international client pays the business $20,000.00 for good or services. The business has associated USD expenses of $10,000 but now they are only payable in 1 month.

Business does not have a Foreign Currency Account

• $20,000 receipt converted at 14.355 to ZAR287,100
• Business is now exposed to USD10,000 exchange rate risk on USDZAR, they could
  • Wait for a month to buy USD10,000 to pay supplier – the approach many small businesses take, accepting significant currency risk particularly considering the volatility of USDZAR
  • Execute a Forward Exchange Contract (FEC), buying USD10,000 for settlement 1 month forward if the bank allows (and prices reasonably!)
  • Execute a Foreign Exchange transaction and pay supplier 1 month early

Business has a USD Foreign Currency Account

• $20,000 receipt credited to USD account
• $10,000 converted to ZAR143,550
• $10,000 paid to suppliers 1 month later
  • By holding the currency of the future commitment there is a natural hedge and therefore no currency risk

It’s clear that use of the foreign currency account has fully eliminated the exchange rate risk and greatly simplified the operational elements of the transaction.

How can I Open A Foreign Currency Account?

Most of the major banks in South Africa offer foreign currency accounts with the only requirements being that your business hold a local currency (ZAR) account with them and the business has an acceptable reason for holding the account/s. There are however some items to consider.

Interest Rates

Foreign currency accounts held with domestic banks typically pay no interest at all on credit balances. In the current global low interest rate environment this is less of an issue than it may have been years ago, particularly for smaller businesses, but needs to be considered.

Bank Charges & Fees

These vary greatly between the banks but the best offers have no monthly administrative fees, no minimum balances and free online account access.

Transactional charges are a key consideration. Charges for international transfers in the same currency vary greatly. Make sure to understand the full range of charges for payments of different types.

Foreign Exchange Services & Related Fees & Charges

Once a business holds its domestic and foreign currency bank accounts with a bank / authorized dealer it is typically obliged to execute its foreign exchange and money transfer transactions with that institution. It is therefore critical to ensure a full understanding of:

• Forex Markups – the largest driver of cost. The % off the interbank spread, taken by the bank, whilst this may vary according to transaction size, should not vary from day-to-day or even dealer-to-dealer for transactions of the same size
• Fees – any other fees and charges related to the transaction, other than account management
• Services – does the bank or provider perform regulatory documentary functions or do they simply expect their clients to do this

How can Domisa Treasury assist

Domisa Treasury is able to assist SMME businesses in South Africa in managing their currency risk by facilitating the implementation of the correct combination of tools to achieve the optimal currency management solution for their unique business needs. We leverage our strong market relationships to make these solutions a reality for our clients. What we offer:

• Bank accounts – we facilitate the setup of foreign exchange transactional accounts with preferred providers
  • Rand (ZAR) accounts – High interest, no monthly fees, fully transactional internet banking
  • Foreign Currency Accounts – accounts available in all major currencies. No monthly fees, internet banking
    • International Payment Solutions – send, receive and hold foreign currency
    • International money transfer – pay foreign currency invoices directly from your currency account
    • Non-ZAR currency pairs – buy GBP with your USD for example
• Commission, Fees and Transparency – Domisa Treasury supports greater regulation of foreign exchange market participants, authorized dealers and intermediaries alike. Transparency to clients is paramount and we provide full disclosure of deal economics to every client on every transaction
  • Commissions – Domisa operates on published, highly competitive commission tiers:
    • Applicable to all our clients consistently
    • Our systems and processes do not allow deviation from these
    • We do not engage in ‘bait and switch’ pricing where transactions become more expensive for clients after the first few transactions – a pervasive problem in the industry
    • Clients always get our published tiers
    • Our live, online calculator is a highly accurate indication of where our clients are currently dealing
      • Available to everybody and requires no information to be provided in order to get an indication – its an opportunity to show off our fantastic pricing, not a data trawling exercise!
      • Use it to compare us to your current provider in real time
      • Click here to use the live calculator
  • Fees – There are no fees on transactions of R50,000.00 or greater and a flat fee of R250.00 below R50,000.00
  • Service – Domisa facilitates all functions for our clients including deal execution & settlement, regulatory reporting, South African Reserve Bank (SARB) applications and payments (both international & domestic)
• Products – Domisa is able to facilitate the full range of foreign exchange products
  • Same-day, Next-day and ‘Spot’ Foreign Exchange
  • Forwards – Forward Exchange Contracts (FEC)
  • Derivatives – Options and Futures

Please contact us for a free consultation to discuss your business needs and what Domisa Treasury could do to assist you in managing your foreign currency risk in the most efficient and cost-effective manner. Click here to contact us today. 

Want to find out more about Foreign exchange South Africa? Read this article.

What is a CFC account?

A customer foreign currency account is a transactional account denominated in a foreign currency. A foreign currency in our case, is any currency other than Rand. It is available in all major currencies and is a useful mechanism for managing foreign currency receipts and payments. The CFC accounts must also allow for transfers to or from its offshore bank account(s) abroad.

Who could benefit from a CFC account?

Below is a list of some of the benefits of a CFC account:

What is the best foreign currency account in South Africa?

The best foreign currency account in South Africa is dependent on your business’ unique needs. Our expert team at Domisa will be happy to assist you in securing unbeatable rates and managing your currency risk. Contact us today to find out more.

The post Business Essentials: The Foreign Currency Account 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.

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