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Cape Town - By the end of 2013 the rand will probably be closer to R11 to the dollar, according to Rob Spanjaard, a director of Rezco Asset Management.
He had already warned in October 2012 that the rand could end up collapsing to more than R10/$.
"We South Africans often feel we are an island and that the rand operates independently," said Spanjaard during a telephonic interview from the US.
"However, if you actually look at the rand, the Brazilian real and the Indian rupee, they have tracked each other almost exactly over the last few years."
He pointed out that this year the real, rupee and even the Australian dollar all fell - like the rand - about 17% to the dollar.
The rand is, therefore, seen by investors as just one of a basket of emerging market currencies.
"What the current trend tells us is that there is a move away from emerging market currencies," said Spanjaard.
The last couple of years the US has been funding its deficits by printing money "from thin air", he said. The Europeans and Japanese have done the same thing.
"That created a lot of extra money sloshing around the system and a lot of that money leaked to the emerging markets," Spanjaard explained.
"The process is now coming to an end, so the money is starting to flow back and leads to fewer foreigners wanting to buy South African bonds."
South Africa has R200bn a year current account deficit, which has been funded with foreigners buying SA bonds and shares.
Now there is less of an appetite for SA bonds and shares, leading to the rand weakening.
"To make matters worse, South Africa is not doing a good job of selling itself as a country," said Spanjaard.
"Things like strikes, violence and corruption make SA even less attractive to investors. So we are going forward into an environment where funds are scarce and there are lots more competition for investment funds around the world."
He said it is, therefore, very important for South Africa to make itself more attractive as an investment destination compared to competitors like Brazil, India and even Australia.
On the other hand, a weaker currency could be good for the economy as long as it does not become a collapse of the currency, said Spanjaard.
South African investors could try to find protection from the weaker currency by looking for companies that have their costs in rands, but sell in hard currency, he said.
"In the US South Africa has an image of being just another emerging market. South Africa has built up a good reputation among investors and still have that to a certain degree, but must be careful not to lose it," warned Spanjaard.
In Africa he names Nigeria as increasingly becoming a competitor for South Africa in relation to drawing investors.
"The rest of Africa is often seen as much more investor friendly. Kenya, Uganda and Zambia are examples. These countries, seen as running themselves well, get an image of having the potential of high growth rates for investors," he said.
"South Africa as a country should, therefore, work harder to be a gateway to Africa. Businesses and investors do have alternatives internationally and do not have to come to South Africa."
On Wednesday, the rand weakened more than 1% against the dollar and government bonds dropped after data showed that headline consumer inflation in July breached the ceiling of the central bank's target band.
The rand was bid at R10.2473/$ from Tuesday’s close of R10.1361 when markets closed on Wednesday.
- Fin24
He had already warned in October 2012 that the rand could end up collapsing to more than R10/$.
"We South Africans often feel we are an island and that the rand operates independently," said Spanjaard during a telephonic interview from the US.
"However, if you actually look at the rand, the Brazilian real and the Indian rupee, they have tracked each other almost exactly over the last few years."
He pointed out that this year the real, rupee and even the Australian dollar all fell - like the rand - about 17% to the dollar.
The rand is, therefore, seen by investors as just one of a basket of emerging market currencies.
"What the current trend tells us is that there is a move away from emerging market currencies," said Spanjaard.
The last couple of years the US has been funding its deficits by printing money "from thin air", he said. The Europeans and Japanese have done the same thing.
"That created a lot of extra money sloshing around the system and a lot of that money leaked to the emerging markets," Spanjaard explained.
"The process is now coming to an end, so the money is starting to flow back and leads to fewer foreigners wanting to buy South African bonds."
South Africa has R200bn a year current account deficit, which has been funded with foreigners buying SA bonds and shares.
Now there is less of an appetite for SA bonds and shares, leading to the rand weakening.
"To make matters worse, South Africa is not doing a good job of selling itself as a country," said Spanjaard.
"Things like strikes, violence and corruption make SA even less attractive to investors. So we are going forward into an environment where funds are scarce and there are lots more competition for investment funds around the world."
He said it is, therefore, very important for South Africa to make itself more attractive as an investment destination compared to competitors like Brazil, India and even Australia.
On the other hand, a weaker currency could be good for the economy as long as it does not become a collapse of the currency, said Spanjaard.
South African investors could try to find protection from the weaker currency by looking for companies that have their costs in rands, but sell in hard currency, he said.
"In the US South Africa has an image of being just another emerging market. South Africa has built up a good reputation among investors and still have that to a certain degree, but must be careful not to lose it," warned Spanjaard.
In Africa he names Nigeria as increasingly becoming a competitor for South Africa in relation to drawing investors.
"The rest of Africa is often seen as much more investor friendly. Kenya, Uganda and Zambia are examples. These countries, seen as running themselves well, get an image of having the potential of high growth rates for investors," he said.
"South Africa as a country should, therefore, work harder to be a gateway to Africa. Businesses and investors do have alternatives internationally and do not have to come to South Africa."
On Wednesday, the rand weakened more than 1% against the dollar and government bonds dropped after data showed that headline consumer inflation in July breached the ceiling of the central bank's target band.
The rand was bid at R10.2473/$ from Tuesday’s close of R10.1361 when markets closed on Wednesday.
- Fin24
