Back over R12/$: Is the Rand's run over?

A week of action transpired in South Africa, as Ramaphosa set about making plans for the next generation of business, infrastructure, and more. All of which require one major thing, which is often the stumbling block:

Funding from investors

Being an emerging country and market, it is higher risk for investors. But with the potential of far higher returns - a risk that some, are willing to take...

...and Ramaphosa is setting about finding those persons.

This all sounds like good news, but there are likely to be some significant hurdles. But more on that later...

The Rand had an excellent week...until Friday arrived - then things went a little pear-shaped!

Join us as we take a look at how the week played out...

The week was filled with major news events, both local and global, and these were some of the biggest ones which we kept an eye on:

• Investment drive - big plans were announced on the future of South African investment...
• The A Team - the first step of the Investment Drive was Ramaphosa putting together 'The A Team' of investment searchers, in an attempt to lure investors into South Africa
• SARS crackdown - as always, being this time of year and with SARS missing their targets, they are starting a crackdown on taxpayers who did not file for 2017.
• UK gives SA a boost - Theresa May met with Ramaphosa this last week, and with that came funding of just short of R1bn from the United Kingdom
• Steinhoff - the battered company continued to receive attention this week, as German prosecutors began to lay into them.
• Land issue - it continues to be the most troubling part of Ramaphosa's presidency, and is surely going to be the bugbear of both present and potential investors...

The major talking point for the week was once again, Mr President Ramaphosa.

His initiatives this week gave many hope, that his 'New Dawn' was becoming a reality. What was promised in his SONA speech just a few hours after his election appeared to be coming to light.

The plans to ignite business. Create jobs. Drive innovation. Improve infrastructure, education and more.

All of these things require funding.

And this week, the plans for funding arrived.

• Plans for a major investment conference in August/September of 2018 were discussed
• A target of R1.2 trillion - over $100bn USD - was the bullseye to be achieved in the next 5 years
• An 'A Team' of investment hunters were appointed - including Trevor Manuel and Mcebisi Jonas

So...wow - are things really happening?

Yes, maybe. But we need to look a little deeper into this. As always, when these claims were put forward, there were some voices of reason shouting over the wave of optimism at the ANC actually looking at kick-starting an economy which has been stagnated for years.

Yet...

...there are stumbling blocks.

And first and foremost, the stumbling block is land expropriation - how can SA expect to get investments with this hanging over the market?

And, in fact, it goes further than that.

The proposed amendment of Section 25 of the Constitution is not just land. It is ALL forms of property, including:

• Land, as in property or real estate
• Intellectual property
• Mines
• Banks
• Businesses

And this is why there are serious voices of concern that "Land Fears could stymie Ramaphosa's investment envoys - IRR"

It is a tough ask to expect investors to commit to spending their hard earned capital, when they are unsure whether it can just be taken by the State...

Yet, the Rand seemed to like this news, and as the week went on, it took another dive below R12/$ before hitting resistance around R11.92...

Perhaps it was Ramaphosa's reassuring, that land reform will not come at the cost of the economy. One doesn't need to look further than every similar Communist-based agenda (that had the same grandiose but flawed vision), to see that this statement is plain nonsense.

In fact, one needs to look no further than the effect that land expropriation with compensation has had on the nations food production since 1994 - with less than 5% of these being successful.

You can try and play it down, but the idea he is rattling investors' nerves - and rightly so.

The late boost that the Rand got was said to be from a host of positive economic data -

• Healthy sales data
• Better than expected local inflation data
• Broader emerging market strength

This are some good triggers for positive movement, but always be wary of judging economic data or news on face value...we cannot trust it to give us an indication of market direction. Ever.

In other news -

• For anyone who has not paid there taxes, there could be trouble coming their way as SARS has announced their intention to go after all taxpayers with outstanding balances
• Oil prices hit a high we have not seen since 2014, at 72 USD to the barrel.
• The IMF (International Monetary Fund) has revised SA’s growth outlook to 1.5% and 1.7% for 2018 and 2019 respectively (upwards from 0.9% for both years).

It was certainly an up and down week globally, and to provide some clarity to our subscribers, we released our next forecast on Wednesday evening with the expected outlook for the coming days, with the market expected to bottom out soon before rising strongly:

Click to enlarge

And on Friday, the market reacted exactly as per our forecast, as we saw the USDZAR confirm a short term bottoming out, moving from below R11.92, to push over R12.05 by the SA close.

Friday was another rough day for Steinhoff, as more news began to flow in:

• They had overstated their income and assets
• They were under more fire, as Germany extended the criminal probe into the company
• Their stocks hit an all time low

This shocking graph gives a real view into the gravity of the situation, as they tumbled from being 'The IKEA of Africa' to near collapse in 4 months:

A spectacular collapse of note - to close to half its listing price in 1998.

The outlook for Steinhoff's survival does not bode well.

Anyway, the week closed out with the USDZAR back well above R12/$ - and poised for more losses...

Monday has opened with the Rand under pressure immediately pushing to its weakest levels in 3 months - in line with our forecast published on Friday evening.

We are expecting a rough ride in the coming weeks, with plenty triggers for moves.

There will be plenty to distract and cause panic decisions - more often than not the wrong ones.

We suggest you keep your eyes on what the sentiment patterns themselves are telling us, which, and as can be seen from the above, have kept us and our clients ahead of the game more often than not....

To see the outlook for the next few days, weeks, months and years, simply click below - and see the difference it will make to your forex decisions.

Kind regards,

James Paynter