There is a lot of bad news already priced into SA markets. Such ZAR undervaluation has not been sustained since around 2016. This is a telltale sign that SA could only attract foreign investors to SA shores by offering deep discounts across all capital markets, including bonds and the JSE.

The combination of the greylisting, failing SOEs, load shedding, deteriorating fiscal performance and the lead-up to elections gave investors all the justification they needed to hedge themselves against an adverse event. That is neatly reflected in the derivative markets and highlights how the market is quite one-sided in its positioning.

BASELINE VIEW: Given the market positioning currently embedded in the financial market pricing, the risk is that anything other than an adverse event could trigger a sharp appreciation in the ZAR beyond the recent appreciation, which, to some extent, has been a function of a depreciating USD.