The South African rand’s surge lasted only as long as it took Cyril Ramaphosa to get himself to the top of the nation’s ruling party.
Now that he has, the currency’s world-beating rally is losing steam, and derivatives markets suggest it’s vulnerable to a renewed selloff.
The rand has climbed 13 percent against the dollar since hitting a one-year low on Nov. 13, as investors bet that Ramaphosa would defeat his rival, Nkosazana Dlamini-Zuma, to take over the African National Congress and put himself in prime position to succeed Jacob Zuma as president in 2019.
The nation’s stocks and bonds rose on Tuesday, the day after Ramaphosa’s win, and extended gains on Wednesday. But the rand traded sideways, suggesting investors want to see improvements to South Africa’s long-term prospects before increasing their exposure to an economy that’s barely growing and at risk of having its debt downgraded further into junk territory.
“The market has got ahead of itself as the victory of Ramaphosa does not spell the end of South Africa’s issues,” Guillaume Tresca, an emerging market strategist at Credit Agricole CIB in Paris, said Tuesday. “It’s facing a turbulent period in the near future, which will make its assets vulnerable. Moreover, the medium- to long-term outlook is still not positive for the rand.”
Tresca recommended shorting the currency against the dollar and targeting a 6.4 percent drop to 13.61. The rand retreated 0.2 percent to 12.7273 per dollar by 11:03 a.m. in Johannesburg.
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