Bottom Line:

  • Since the last report in March, the ZAR appears to have consolidated its undervaluation against all currencies barring the JPY. A significant number of risks have played out and undermined the performance of the ZAR, including SOE failures, SA’s greylisting, persistent load shedding and the changes to Reg 28 that allow funds to invest a greater proportion of funds abroad. Funds have sought to diversify their portfolios away from SA’s failures, shield their portfolios against currency volatility and expose clients to a wider selection of companies and markets.
  • The result is a strong outflow of funds from both equities and bonds. The strong correlation between these portfolio outflows and the performance of the ZAR once again highlights how the markets will hold the government to account for poor policymaking. Until such time as investors have taken their natural fill of investments abroad, the ZAR will perform poorly against most currencies and will need to offer foreign investors a deeper discount or higher incentive to invest in SA.
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