Rand one of best performing currencies, but markets will look to Eskom, land reform in election aftermath | Fin24
 
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Rand one of best performing currencies, but markets will look to Eskom, land reform in election aftermath

May 10 2019 14:42
Fin24

The rand was one of the best performing emerging market currencies as the final votes were counted on Friday, says research analyst Lukman Otunuga.

"(This) was mostly due to external factors around stronger appetite for world stock markets, and signs of political continuity domestically as the initial outcome of the South African election show the ANC heading for a win," he said.

By 14:47 on Friday, the rand was changing hands at R14.20 to the greenback.

"One key thing to keep in mind is that the final results of the elections have yet to be officially announced by the IEC. We will know how markets are reacting to the official results next week, once it is released on Saturday, May 11," he said.

The rand was one of several other emerging market currencies who were also facing positive sentiment, despite the trade war between the US and China which intensified on Friday morning after US President Donald Trump hiked tariffs significantly on Chinese imports.

"What is powering the rand and other emerging market currencies is the unexpectedly positive mood across markets despite the US hiking tariffs on Chinese goods. With investors still cautiously optimistic over both sides finding a middle ground on trade, emerging market currencies have room to push higher if a trade deal is reached," said Otunuga.

What now for Eskom, Land Reform?

Peregrine Treasury Solutions's Bianca Botes said while the ANC win was largely expected to be rand positive, the "current global risk-off environment affected by the US-China trade dynamic has put a dampener on the performance of the local currency". 

"As the ANC win is digested, markets will swiftly shift their focus to the subsequent actions of the ruling partly, including the announcement of Cabinet by President Cyril Ramaphosa, the State of the Nation address due to follow in June, as well as policies relating to expropriation of land without compensation," she said.

"A key focus as we head in to post-election season will be Eskom and the anticipated restructuring of the power utility as this dilemma remains the biggest threat to economic growth." 

Botes also commented on the impact of the US China trade war on global markets.

"Trump certainly knows how to hold the market’s attention. His Sunday tweet that a new bout of tariffs were on the cards for Chinese imports sent anxiety levels through the roof, causing a fresh round of risk-off sentiment throughout the global market environment. 

"Looking at some of the key economic data, the strategy however seems to be working for the US economy, with JOLTS job openings increasing to 7.488m, while core PPI remains within expectations at 2.2% year on year.

"While initial jobless claims overshot the expected figure marginally, the figure still indicated a decrease to 228k from the previous week's 230k."

China's growth potential

She said with a focus on trade tariffs, China's growth potential is again under threat with analysts projecting a possible 1% decline.

"Chinese exports in April dropped by 2.7% year-on-year, while imports rose by 4% for the same period. CPI released on Thursday remained in line with expectations at 2.5% year-on-year while PPI ticked up marginally by 0.9%. 

"While China is slowly converting its production-driven economy to one driven by consumers, commodity-based countries remain dependent on continuous economic growth and imports from this economic powerhouse." 

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