After a period of underperformance, the tide seems to be turning for the ZAR. Local sentiment has been bolstered by a favourable election outcome, and while there is still some way to go, this is the start that the ZAR has needed to take advantage of what should be more favourable external conditions. South African bonds are offering attractive yields at a time when sentiment is turning bullish. Furthermore, the ZAR remains undervalued even after its recent gains, making further appreciation possible.

The timing of this coincides with global investors turning away from Latam currencies, which have been the carry kings over recent years. A shift away from the likes of the BRL and MXN will be favourable to the ZAR as its carry appeal will be very attractive to foreign investors.


BASELINE VIEW: As the global inflation and credit cycles turn, so the ZAR looks set to benefit from a shift in local sentiment and attract foreign portfolio flows. The stronger the degree of inflows, the greater the probability that the ZAR will recover. A virtuous cycle now appears to be underway given changing external dynamics and the ZAR should enjoy a stronger second half of the year.