Alongside other emerging market currencies, the rand has not been able to escape the strengthening dollar with the currency trading at R12.50 at open on Thursday morning (10 May).
However, it is worth noting that this level is still somewhat somewhat stronger than a year ago, and it is therefore premature to worry about upward pressure on inflation from non-oil imports becoming more expensive (oil is almost 40% more expensive in rand terms than a year ago).
This is according to Dave Mohr, chief investment strategist at Old Mutual, who said that the weaker rand does mean that further interest rate cuts are off the table for now.
“Fortunately, dollar-denominated debt levels are moderate and not a huge concern for the local economy since neither the government nor the private sector struggles to access credit in the local market,” he said.
“Where the weaker rand does help is on the JSE, where the largest companies generate most of their revenues abroad. The weaker currency also means local investors saw the benefit of positive global equity markets in rand terms,” he added.
Mohr noted that the the local equity market recovered some of the losses of February and March during April.
“The FTSE/JSE All Share Index (ALSI) returned 5.4% in April, but the first few days of May have been choppy. The one-year ALSI return at the end of April was 11.5%,” he said.
“Though all the main sectors were positive, resources had the best performance in the month with an 8.6% return. Industrials returned 5.2% in April. Financials also had a good month, returning 3.2% and lifting one-year returns to 17%. Banks delivered 1% in April, but are up 40% over 12 months.
“The bombed-out local listed property sector enjoyed some respite in April. The FTSE/JSE SA Listed Property Index returned 7.6% in April, but is still down 13% so far in 2018 and flat over the preceding two years.”
April a much better month
According to Mohr, bonds had a negative April as the rand retreated and global bonds sold off.
The All Bond Index (ALBI) lost 0.7% in the month as the 10-year government bond yield rose from 7.9% to 8.19% during the month.
The ALBI’s 2018 return of 7.3% is still well above cash, while a 13.7% return over 12 months means it is still the top performing asset class for local investors over this period.
“Though yields have increased across the boards in emerging markets, South African yields remain attractive and among the highest,” Mohr said.
“It would have been nice if all asset classes always moved up simultaneously, but in reality it doesn’t work this way, and that is why diversification is important. All in all, April was a much better month for local investors after a tough first quarter.
“It shows the benefit of sitting tight through market volatility, provided you have an appropriate investment strategy.”