Bringing some sanity to recent market moves

Key points

• It is always unnerving when substantial changes occur in a very short time. The outbreak of war in the Middle East has caused many disruptions, and there will be significant consequences that flow from it. How bad things get will depend on how long the war lasts and how much damage is inflicted in between.
• However, sometimes it is worth taking stock of SA’s real position to understand the longer-lasting implications. From a trade perspective, which will directly influence the ZAR, the picture might not be as dire as some people anticipate. This report seeks to introduce some sanity to discussions. It is not an exhaustive document that aims to cover all the impacts of the war, but it does seek to inject some balance into some debates.

Baseline view:

Although risk aversion has ramped up dramatically, SA’s terms of trade have not completely collapsed. The country was on a solid fundamental footing before the war, and that will mitigate some of the fallout. That does not preclude the ZAR from depreciating further in the next two weeks, but it does suggest that, instead of viewing current events as a grand collapse, one should see it as an opportunity for exporters that have had a much tougher time of late.

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