The rand fell the most in six months on Monday as violence sparked by former president Jacob Zuma’s arrest closed businesses and even Covid-19 vaccination sites, striking another blow to an economy that is already under pressure from coronavirus restrictions.
SA’s currency fell more than 2%, breaching R14.50/$ and trading weaker than R20/£ for the first time in almost two months as violence that started as sporadic acts in KwaZulu-Natal spread to Gauteng.
The inability of the country’s security forces to foresee or prevent the violence raised concerns about the country’s long-term political stability among potential investors.
On Sunday, President Cyril Ramaphosa announced that the country will remain on level 4 of lockdown, the second most severe, with minor relaxations.
While restaurants are allowed to operate, the complete ban on alcohol sales remains in place, as does the prohibition of leisure travel in and out of Gauteng, which caused airline operator kulula.com to suspend its services.
By 5pm, the rand had come off the day’s worst levels but had still lost 1.65% to R14.3996/$, having earlier traded as low as R14.5029. It has been a sharp turnaround for a currency that just four weeks ago was trading below R14/$ and was the best performer among emerging-market currencies.
It slipped 1.64% to R17.1028/€ and 1.78% to R20.0124/£.
SA’s bonds also weakened, with the 10-year yield rising two basis points to 8.89%. Bond yields move inversely to their prices. Movements in bond prices are a barometer of investors’ faith in the country’s ability to repay its debt.
A weak economy hurts sentiment through concern that tax revenue will be hit.
The rand, often a barometer of sentiment among emerging markets, trailed behind Brazil’s real and Turkey’s lira. At 5pm, the real was 1% firmer against the dollar, while the lira had strengthened 0.2%.
Analysts said the violence would undermine investor, business and consumer confidence, while also posing a threat to Ramaphosa’s agenda. The president made attracting foreign investors a key priority of his presidency, and pictures of uncontrolled looting beamed across the world will make the country an even harder sell.
Standard Bank, the continent’s largest lender, shut some branches, while Dis-Chem, the second-largest retail pharmacy chain in SA, shut its vaccination sites in KwaZulu-Natal.
According to the Independent Community Pharmacy Association, which represents more than 1,100 pharmacies in SA, the vaccine rollout in KwaZulu-Natal was suspended entirely on Monday morning.
“Nobody wants to open a business when it is going to be looted,” said Drikus Combrinck, CEO at boutique asset management firm Capicraft.
Investec chief economist Annabel Bishop said: “The risk is that this spreads, making some municipalities ungovernable, causing Ramaphosa supporters in government to reconsider their positions and so eroding the political support that has been so slow to build up.
“The rand is at risk until the situation stabilises.”
The rand’s recent losses have eaten into its gains for the year, leaving it 2% stronger so far in 2021, boosted by higher commodity prices and a search for yield as developed-country central banks vowed to be slow in normalising rates from close to or below zero.
The rally had shown signs of slowing or reversing as a faster-than-anticipated recovery in major economies caused traders to price in higher risks of interest rates being increased, reducing the allure of holding emerging-market assets.
The JSE bucked the trend on the day with the all share gaining 1.37% to 67,293 points. Travel and leisure stocks added 5%, the most since November 2020, while miners were boosted by a higher platinum price. Rand-hedge stocks also benefited.
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