The rand, generally regarded as a barometer of investor sentiment towards emerging markets thanks to its liquidity, has proven resilient in the face of Russia’s invasion of Ukraine, underpinned by firmer commodity prices.
However, the local currency appears poised to succumb to contagion from the war after weakening 1.25% on Friday to 15.3891/$.
“The rand has been a benefactor of much higher hard and soft commodity prices that has boosted our terms of trade, even as the price of oil has surged as well,” said DG Capital Forex MD Ryan Booysen. The rand has thus “remained stable relative to the dollar despite the Russian invasion”.
As uncertainty about the developments in the war continue to weigh on sentiment, MyWealth Investment CEO Annatjie van Rooyen said the outlook for commodities remains positive, and any price weakness could offer opportunities to buy. Stocks that remain attractive are Sasol, Impala Platinum, Anglo American Platinum and Kumba Iron Ore, Van Rooyen said.
Brazil, like SA, is a major commodities producer and its currency, the real, similarly weakened 1.07% against the dollar on Friday as “commodity prices are taking a breather after their strong recent outperformance”, said Van Rooyen.
The JSE also came under fire on Friday, falling in line with global markets as the war in Ukraine intensified.
The all share, which reached a record intraday high of 78,297 points on Thursday fell more than 3% on Friday — the most in six weeks, with all major indices, barring that of precious metals and mining, in the red, reacting to news that Russian troops had bombarded and captured Europe’s largest nuclear power station, Zaporizhzhia, in Ukraine.
Naspers and Prosus — which began to fall out of favour with investors about a year ago due to their large holding in internet group Tencent when China began a crackdown on tech stocks — led losses on the local bourse on Friday. Naspers tumbled 10.94% to R1,633.42 — its biggest fall in more than twenty years, while Prosus dropped the most since listing in September 2019, down 9.47% to R817.
“Naspers and Prosus fell significantly due to exposure in Russia through OLX [which is owned by Prosus] and Russian internet company VK Group [previously Mail.ru],” said Van Rooyen.
“Negative sentiment has been driving Naspers and Prosus out of favour due to their exposure to the tech sector — represented by growth stocks that need funding to expand, which could become a problem amid higher interest rates resulting from higher inflation,” she said.
On Friday, US nonfarm payrolls data came in well above market expectations, with the dollar firming as a result. Higher jobs numbers and inflation in the US is supporting the argument for bigger interest rate hikes in the US.
Global investors have in the past few days gone from hoping for talks of a potential ceasefire between Russia and Ukraine, to expecting a much longer military conflict.
“The current sell-off is a sentiment-driven event fuelled by uncertainty regarding a possible slowdown in global growth due to the war,” Van Rooyen said.
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