South African Rand Rally Extends on Moderna News, Ramaphosa Update

- Moderna news boosts EM assets, ZAR included
- SA records sizeable capital inflows in Nov.
- Ramaphosa says SA on track to deliver ERRP


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  • GBP/ZAR spot rate at time of writing: 20.27
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The South African Rand went higher by over a percent against the Pound and other major currencies as global investor sentiment rose sharply in the wake of news that biotech firm Moderna's vaccine candidate has proven successful, while on the domestic front investors appear to be warming to news the country's economic growth recovery strategy is on track.

A fresh pump to sentiment - the kind that tends to lift Emerging Market assets, including ZAR - came after Moderna revealed its covid-19 vaccine candidate has proven to be more than 95% effective in preventing the various in stage 3 trials.

Furthermore, the vaccine is "stable" for 30 days at refrigerator temperatures (around -2 decrees celsius). This contrasts to the Pfizer vaccine which needs to stored at -70°C.

The developments give investors hope that 2021 will see growth return to markets as the covid-19 pandemic fades as a risk, prompting a rally in stocks, commodities and 'risk on' currencies.

"The rand is however likely to be gaining some underpin of support from the substantial advances that are occurring around the world in a large number of vaccine trials, with many making steady progress towards significant, but not yet mass, production levels," says Annabel Bishop, an economist with Investec. "Key is global economic growth, and any expectations that the global recovery will be quicker than currently anticipated, leads to substantial market risk-on, supporting EM currencies."

At the start of the new week the Pound-to-Rand exchange rate is quoted 1.00% lower at 20.28, the Euro-to-Rand exchange rate is three-quarters of a percent lower at 18.20 while the U.S. Dollar-to-Rand exchange rate is 0.70% lower at 15.37.

Pound to Rand

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News of Moderna's successful vaccine follows on from that of Pfizer exactly one week earlier which reported its candidate was 90% effective, creating a surge in stocks as investors scrambled for exposure to discounted stocks and 'riskier' assets that offered greater yield.

According to Investec, an improved global investment environment has boosted the desire for Emerging Market assets, with a jump in flows of foreign capital into South Africa aiding the Rand in November.

Improving investor sentiment in the wake of the U.S. Presidential election in particular created a strong impulse of positive investor sentiment that Investec says resulted in R16.2BN in net foreign inflows into South Africa’s bond market in November to the 10th.

"Foreigners have purchased R3.6bn in South African equites, net of sales, in November to date, which has assisted the domestic currency. Along with positive market sentiment, the medium-term outlook for the SA economy has also been seen to brighten somewhat," says Bishop.

But it's not only the global setting that is providing aid to the Rand according to Bishop who notes, The Economic Reconstruction and Recovery Plan (ERRP) is gaining traction, with a strong focus on what is needed to drive implementation and substantial work has gone into it already, while a number of factors are partially achieved, and others are in process.

President Cyril Ramaphosa said of the plan in his weekly open letter, "the total investment commitment of R664 billion", with "about one-tenth … scaled back or put on hold due to the pandemic."

Making the case for foreign investors to consider South Africa, Ramaphosa added, "most of the investments are going ahead. Of the 102 projects that were announced at the last two investment conferences, 12 are in the early stages of implementation, 19 have been launched, and 44 are currently under construction or being rolled out."

"It creates work opportunities and full-time jobs, providing people with an income to feed their families and pay for basic amenities. This income gives them purchasing power and enables them to access credit for buying a home or starting a business," said Ramaphosa.

The Rand is forecast to retain a strong bias over coming weeks given the confluence of positive domestic and foreign developments, according to Bishop.

"The rand is currently at R15.39/USD, and is likely to run in the R15.00/USD to R16.00/USD range in 2021. This quarter the rand has seen strong recovery, but not to R14.00/USD. It could weaken after the downgrades, but then pull stronger towards year end," says Bishop.

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