Publications
Partners
Johannesburg - Emerging market economies are likely to continue seeing "robust capital inflows" over the medium term, macro strategist at Absa Capital Jeff Schultz said on Tuesday.
The capital inflows are also likely to result in a further appreciation of the currencies in these markets.
Schultz said favourable fundamentals in emerging market economies, record low policy rates in developed market economies and the US Federal Reserve's indications of possible further quantitative easing are factors that should remain supportive of capital inflows.
The SA Reserve Bank (Sarb) has in recent months increased its reserves accumulation in efforts to cool rand strength caused by the strong capital inflows, among other factors.
The keen interest in South African businesses by international investors, seen in the form of mergers and acquisition activity, has also appreciated the local currency.
Japan's Nippon Telegraph and Telephone has already bought South African IT firm Dimension Data Holdings [JSE:DDT], while global retailer Walmart has formally announced its intention to buy a 51% stake in Massmart Holdings [JSE:MSM].
Absa Capital expects to see a further increase in the Sarb's forward position through the use of foreign exchange swaps as it attempts to "sterilise" some of the flows emanating from M&A transactions.
Schultz says the favourable fundamentals, low interest rates in developed market economies and possible further quantitative easing leave the Sarb "with very few tools at its disposal to stem the tide of rand appreciation anytime soon".
Absa Capital sees the rand trading in a R6.85/$ to R7.10/$ range over the next 12 months.
The capital inflows are also likely to result in a further appreciation of the currencies in these markets.
Schultz said favourable fundamentals in emerging market economies, record low policy rates in developed market economies and the US Federal Reserve's indications of possible further quantitative easing are factors that should remain supportive of capital inflows.
The SA Reserve Bank (Sarb) has in recent months increased its reserves accumulation in efforts to cool rand strength caused by the strong capital inflows, among other factors.
The keen interest in South African businesses by international investors, seen in the form of mergers and acquisition activity, has also appreciated the local currency.
Japan's Nippon Telegraph and Telephone has already bought South African IT firm Dimension Data Holdings [JSE:DDT], while global retailer Walmart has formally announced its intention to buy a 51% stake in Massmart Holdings [JSE:MSM].
Absa Capital expects to see a further increase in the Sarb's forward position through the use of foreign exchange swaps as it attempts to "sterilise" some of the flows emanating from M&A transactions.
Schultz says the favourable fundamentals, low interest rates in developed market economies and possible further quantitative easing leave the Sarb "with very few tools at its disposal to stem the tide of rand appreciation anytime soon".
Absa Capital sees the rand trading in a R6.85/$ to R7.10/$ range over the next 12 months.
