Why we’re staring R16/$ in the face
Market commentator and Chief Strategist at Investment Solutions, Chris Hart, said the rand could weaken as much as 51% over the next three years… That means the rand could reach a whopping R16 to the US dollar!
So why is the future looking so gloomy for the rand?
Statistics South Africa announced recently that our GDP contracted 0.6% for the first quarter of the year.
The thing is, if the next quarter also gives negative growth it would mean we’re in a recession.
When this happens, our currency should take another knock.
The main reason our GDP shrunk was because of the strikes in the mining sector. But after months without an agreement, the strike is continuing. It could get so bad that we face another Marikana tragedy.
So I’m sure the next set of results will look just as ugly.
But there’s another reason our rand will weaken… And that’s thanks to our imports and exports.
You see, our manufacturing and export industries benefit significantly from a weaker rand. When the rand is weak, our local products are cheaper for foreigners and demand for them increases.
The problem is, when the demand for South Africa’s products plummets, the rand takes a knock.
And China, a major importer of South African commodities, came out with disappointing data showing the demand is weakening.
But there is something you can do about our lacklustre currency…
How to reverse the effects of rand weakness on your wealth
All you need to do is invest in companies that make more and more money as the rand weakens.
You see, when a company sells its products in US dollars, British pounds, or Euros it automatically turns rand weakness into increased profits.
If, for example, the rand is at R10 to the dollar, $1 million in profit equals R10 million. When the rand moves to R11 to the dollar, $1 million in profit is equal to R11 million. And the best part is, the company doesn’t have to lift a finger to see its profits increase like this.
So you need to find companies that have operations overseas. They earn revenue in foreign currency, and that will protect you from a plummeting rand.
You should look to invest in companies like Sasol, Mondi, BHP Billiton and Steinhoff International. All these companies have massive operations overseas and they’re listed on our stock exchange. So you don’t even need to take your money overseas to protect yourself.
Thrive in your possibilities,