South African Rand Rally Falters on Doubts Over SAB / Anheuser-Busch Deal Success
- Written by: Gary Howes
SA rand exchange rates surrendered gains amid worsening global data and doubts over the proposed union between SABMiller and Anheuser-Busch InBev.
The South African currency has seen its recent recovery rally brought into question as the market questions the prospect of inflows arising from the proposed marriage of SABMiller and Anheuser-Busch InBev.
"The makings of a brewing behemoth could be stalled by a series of regulatory hurdles, souring sentiment. Aside from antitrust issues, job preservation and tax structures will come under immense scrutiny to ensure that stakeholders’ interests are assured," says Nema Ramkhelawan-Bhana at RMB in a briefing to clients.
However, it is China that remains the single biggest threat to the value of the ZAR at the current time with news that the world's second largest economy continues to slow down.
Commodity exporting nations such as South Africa have become heavily reliant on China's ability to deliver break-neck growth; however the assumption that this rate of economic growth can continue indefinitely is misplaced.
"All risk assets seem to have peaked. The rand is no different from the pack, having failed yesterday at the same support level as Friday. For the risk rally to resume it appears that we need a new stimulus, with the week-long stimulus from the weak US payrolls number finally having run out," notes John Cairns at Rand Merchant Bank.
Cairns says the Chinese data was certainly worrying:
"While exports were flat in year-on-year yuan terms, a relatively decent performance, imports dropped a much-worse-than-expected 18%. This headline rate can be misleading if one does not account for price effects from the fall in commodities but, even so, the figure points to an ongoing decline in local consumer and investment spending."
The pullback in the South African rand has allowed the pound sterling to stabilise: The GBP to ZAR exchange rate has fallen from its long-term best figures above 21.00 back towards 20.00.
Latest Pound / SA Rand Exchange Rates
  | Live: 22.6341▼ -0.08%12 Month Best:25.4721 |
*Your Bank's Retail Rate
| 21.8646 - 21.9551 |
**Independent Specialist | 22.3172 - 22.4078 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
More Commodity Price Headaches for ZAR Ahead?
An interesting report has been issued by Barclays over the past 24 hours - the investment bank has warned clients that further commodity price declines may take place.
This is critical for the rand's outlook as the correlation between the currency's performance and the decline in global commodity prices is a close one.
In a note to clients Kevin Norrish at Barclays says:
"We agree that the downside price risks are receding as supply restructuring is gathering pace, but the bottoming out process is likely to last for a while yet.
"If past patterns are any guide there is unlikely to be a sustainable improvement in the prices of either commodities until global GDP starts to improve and there is little sign of that yet."
The key ingredient that is missing this time round is any significant recovery in the global economy to boost demand it is argued.
During the financial crisis the price recovery was supported by average global GDP growth from the second quarter of 2009 onward of 4%, 5.3%, 5.1% and 6%.
"Restocking all the way through the oil and copper distribution chain magnified the underlying demand improvement and resulted is sustained periods of very strong demand growth," says Norrish.
Likewise the recovery from the Asian financial crisis took place on the back of a spurt of above-trend global growth, averaging over 4.5% from early 1999 into 2000. Global growth also averaged over 4.5% for a considerable time as commodity prices begun a sustainable recovery from their 1980s lows.
"Thus while we do not expect any further significant declines in oil or copper prices the prospect of the type of rebound that has characterised previous recoveries looks slim. The bottom is probably in, but it is likely to prove a long one," says Norrish.
