The sacking of Finance Minister Nhlanhla Nene for no other reason than to get Treasury’s approval for a disastrous deal by SAA on 9/12 became our own 9/11 disaster. In the aftermath of the sacking, the Rand weakened to R16.85 and government bond yields shot up to 10.5% as mostly foreigners sold South African assets.
On 8 July this year I wrote a blog called “Trying to make sense of this market routing”. The JSE just experienced a big fall and everybody was worried. I explained that if you see different scenarios developing in the equity market and Bond market, trust the Bond market. The Bond market is much more
Where are you going Rand? Since Jan 2011 the Rand has seen a dramatic fall. Not 105% as indicated in the graph below. The correct way to calculate the decline is by using the inverse of the Rand/$ quote, namely US cents/Rand. The Rand fell from about R6.50 (15.38 US cents per Rand) to R14
Looking at the oil price graph from 1996, it is clear that the oil price never stayed low for long after a substantial drop. In 1998 the oil price dropped more than 50% from over $20 to below $10, but it recovered back to $20 in only six months. Same 50% drop ($35 to $17)
The only reason for the rate hike that I can understand is if it is part of a concerted EM action. We know that most of the emerging markets increased rates recently: Brazil, India, Russia, Turkey, etc. With interest rates in the US and Europe likely to stay this low until H2 2015, higher yields