Real Estate Investor Magazine South Africa Real Estate Investor Magazine - June 2017 | Page 59

becomes a riskier investment destination. Expect to
see inflation increase, this, together with our endemic
problems of low productivity and high relative cost of
labour, means that the Rand will need to devalue to
keep South Africa competitive in export markets.
On the other hand, as an emerging market
currency, we also get lumped with the likes of Turkey
and Brazil, and recently the international community
has looked favourably on emerging markets as risk
appetite has become stronger. This has helped the
Rand, however, as the recent political crisis in Brazil
has demonstrated, investors are very willing to drop
an emerging market currency if they smell a rat.
The Brazilian currency shed 10% in one day when
their president was implicated in a bribery scandal.
Stories like these are not uncommon and can serve
as a warning to putting too much stock into general
emerging market rallies.
When it comes to emerging market currencies,
no discussion of fundamentals is complete without
delving into commodities. Recently, there has been
a muted recovery in the price of most commodities,
so South Africa stands to benefit from this in the
medium- to long-term. In addition to this, the recent
drought (apart from in the Western Cape) has broken
and the agricultural-sector, a large exporter, will see
some growth in the year ahead whilst we rely less on
imported food - this is also good news for the Rand.
Local consumers are cash-strapped and buying less,
which translates into lower imports, again a positive
for Rand strength. So in a way many medium-term
fundamentals appear to be pointing in the right
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direction with just a few dark (sometimes very dark)
clouds on the horizon.
Be wary of speculation
The Rand is one of the most speculated/traded
currencies, relative to its market share of global
currency trade. This, over and above what I’ve
already pointed out, makes the volatility factor in
the sentiment-driven swings even more terrifying.
Until recently, the Rand was the most volatile EM
currency, however recently we have slipped back into
second place to the Turkish Lire… Nothing to be that
proud of!
Truly, the next two years will
be perhaps the greatest test
of our young democracy.
South Africa offers some of the highest money
market interest rates in the world, so why wouldn’t
fund managers dump short-term cash into our markets
as they aggressively seek yield, which in today’s world
is so hard to come by? Just remember that this is
flighty cash, and whilst it trickles in slowly, when
the risk trend and perception reverses and the Rand
starts falling, this money flies out of the system at an
alarming rate, contributing to a speedier devaluation.
RESOURCES
Sable International
JUNE 2017 SA Real Estate Investor
57