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from Global Investing:
South African rand slides as labour unrest grows
The South African rand has lost most ground amongst emerging market currencies, according to Reuters data, falling almost 10 percent so far this year to hit 4-year lows against the dollar.
That is perhaps not so surprising given the country's high level of dependence on the minerals and mining sectors, which have been disrupted by labour strikes along the same lines evident in the summer of 2012. Lonmin, the world's third largest producer of metal, said it stopped its production of its Marikana mine near Rustenburg following strikes over wages.
Net commodity exports - Morgan Stanley and UNCTAD
With the metals and mining sectors accounting for 60 percent of South Africa's exports, the strong relationship between these sectors and the rand is not surprising. A falling currency has a knock-on effect of facilitating inflation, especially as imports grew faster than exports for the first quarter of 2013. Meanwhile platinum prices have been in a gradual downwards trend since February.
The currency could be in for a deeper slide if mining companies' wage negotiations are not made within the July 1 timeframe, while the central bank is not expected to act. According to Phoenix Kalen, CEEMEA Economist at RBS:
from Ian Bremmer:
New strings attached
China’s influence in Africa goes so deep that African leaders are starting to shape their own agendas after China’s. In February 2012, South African President Jacob Zuma gave his “state of the nation” speech in Cape Town, but he might as well have been in Beijing. “For the year 2012 and beyond,” he said, “we invite the nation to join government in a massive infrastructure development drive.” By October, Zuma was vowing $100 billion in Chinese-style infrastructure investment to help create jobs. In welcoming Xi Jinping, China’s new president, to South Africa last month for a BRICS conference, Zuma gushed, “We view China’s success as a source of hope and inspiration.” Apparently, he also views China as a model for his country’s development.
The infatuation is mutual. Xi Jinping recently made his first major foreign diplomacy trip, choosing to go to Africa (after a brief visit to Moscow), stopping in Tanzania, South Africa and the Republic of Congo as he made the rounds of one of China’s most important regions for investment. After all, China’s foreign direct investment in Africa stood at less than $100 million in 2003; today, it’s more than $12 billion. China is already responsible for more than a quarter of all foreign investment in Africa — and commerce is still growing at a rapid clip.
from Global Investing:
Rand: the only way is south
Any hopes of policy support for the rand from the South African Reserve Bank (SARB) have vanished. The currency fell 1 percent after yesterday's SARB meeting where Governor Gill Marcus made it clear she would not be standing in the way of the rand's move south. It is now trading at 9.32 per dollar.
More losses look likely, especially if foreign bond investors throw in the towel, a move which analysts at Societe Generale liken to "the market equivalent of a volcanic eruption". Foreigners, after all, own more than 36 percent of the 1 trillion-rand market in local currency sovereign bonds.
from Global Investing:
Dollar drags emerging local debt into red
Victims of the dollar's strength are piling up.
Total returns on emerging market local currency bonds dipped into the red for the first time this year, according to data from JPMorgan which compiles the flagship GBI-EM global diversified index of domestic emerging debt. While the EMBI Global index of sovereign dollar debt has already taken a hit the rise in U.S. yields, local bonds' problems are down to how EM currencies are performing against the dollar.
JPMorgan points out that while bond returns in local currency terms, from carry and duration, are a decent 1 percent, that has been negated by the 1.3 percent loss on the currency side. With the dollar on the rampage of late (it's up almost 4 percent in 2013 against a grouping of major world currencies) that's unsurprising. But a closer look at the data reveals that much of the loss is down to three underperforming markets -- South Africa, Hungary and Poland. These have dragged down overall returns even though Asian and Latin American currencies have done quite well.
from Global Investing:
Ratings more than a piece of paper for Africa
By Stephen Eisenhammer
Does a sovereign credit rating from a glass tower in London or New York impact life in the country being rated? Apparently in Africa it does.
According to research by the rating agency Fitch, sovereign credit ratings significantly boost foreign direct investment (FDI) to Africa.
from Left field:
Domination in ODIs a thing of the past
Recent results in one-day cricket have not only made a mockery of the rankings but it has also injected some much-needed excitement in the format.
First, it was current No. 1 India, who lost to Pakistan (No. 6) at home, followed by third-ranked Australia, who fought hard to just level a series with visitors Sri Lanka. Then it was the turn of hosts South Africa to lose a three-match series to lower-ranked New Zealand.
from Global Investing:
Emerging policy-One cut, two steady
What a varied bunch emerging markets have become. At last week's monetary policy meetings, we saw one rate rise (Serbia) and differing messages from the rest. Mexico turned dovish while hitherto dovish Brazilian central bank finally mentioned the inflation problem. Russia meanwhile kept markets guessing, signalling it could either raise rates next month or cut them.
This week, a cut looks likely in Turkey while South Africa and the Philippines will almost certainly keep interest rates steady.
from Ian Bremmer:
2013′s top 10 political risks
It was a close call at times, but we made it through 2012. Now we’re set to encounter a new set of risks ‑ but not in the world’s advanced industrialized democracies, which are much more resilient than feared. This year, with the global recession on the wane, attention shifts back to emerging markets, the economies that are usually the ones that pose the most political risk. You can read the whole report from my political risk firm, Eurasia Group, here, but an executive summary of this year’s top 10 risks, in video and text, is below:
10.) South Africa: Africa overall looks like it will continue its recent growth. But South Africa, one of the continent’s most complex and important economies, is floundering. Its dominant political party, the African National Congress, is resorting to populism to maintain its base among the urban and rural poor. That means more state intervention, more labor unrest and more assertive unions. We’re not predicting a fundamental political crisis, but the country is moving along a path that offers little reason for optimism.
from Global Investing:
The Watanabes are coming
With Shinzo Abe's new government intent on prodding the Bank of Japan into unlimited monetary easing, it is hardly surprising that the yen has slumped to two-year lows against the dollar. This could lead to even more flows into overseas markets from Japanese investors seeking higher-yield homes for their money.
Japanese mom-and-pop investors -- known collectively as Mrs Watanabe - have for years been canny players of currency and interest rate arbitrage. In recent years they have stepped away from old favourites, New Zealand and Australia, in favour of emerging markets such as Brazil, South Africa and Turkey. (See here to read Global Investing's take on Mrs Watanabe's foray into Turkey). Flows from Japan stalled somewhat in the wake of the 2010 earthquake but EM-dedicated Japanese investment trusts, known as toshin, remain a mighty force, with estimated assets of over $64 billion. Analysts at JP Morgan noted back in October that with the U.S. Fed's QE3 in full swing, more Japanese cash had started to flow out.
from Global Investing:
After bumper 2012, more gains for emerging Europe debt?
By Alice Baghdjian
Interest rate cuts in emerging markets, credit ratings upgrades and above all the tidal wave of liquidity from Western central banks have sent almost $90 billion into emerging bond markets this year (estimate from JP Morgan). Much of this cash has flowed to locally-traded emerging currency debt, pushing yields in many markets to record lows again and again. Local currency bonds are among this year's star asset classes, returning over 15 percent, Thomson Reuters data shows.
But the pick up in global growth widely expected in 2013 may put the brakes on the bond rally in many countries - for instance rate hikes are expected in Brazil, Mexico and Chile. One area where rate rises are firmly off the agenda however is emerging Europe and South Africa, where economic growth remains weak. That is leading to some expectations that these markets could outperform in 2013.
