SA bonds and the rand: It’s crazy what a little faith can do
Easy for investors to pile back into local bonds (and so beef up the rand) if the domestic situation brightens
Even though fear and risk aversion grip global markets, it may not be doom for the rand, as SA still has a little time to get its financial house in order.
Markets have punished the rand and local bonds for the government’s failure to act swiftly and decisively to rein in debt and restructure state owned enterprises.
But volatility in the currency has as much to do with the depth and sophistication of SA’s capital markets as domestic issues. Good and bad news disproportionately affect the rand due to its status as a proxy for emerging-market currencies – but this also means it will be easy for investors to pile back into local bonds (and so beef up the rand) if the domestic situation brightens a little...