The rand has collapsed over the last two weeks. It moved from below R13,90/$ to worse than R15,30/$. That's more than 10% weaker in a fortnight. Obviously, many of you are worried you've lost your chance to get money out of SA at a reasonable exchange rate.
The question on everyone's mind: Should you get out now or wait for a better level?
The only way to answer this question is to look for the reasons behind the fall. There are currently three main issues affecting the currency:
1. US - China/World trade war
2. The Argentina crash
3. South African economic risk
Let's look at each in turn.
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1. US – China Trade War
The US China trade war continues to rage as both Trump and China allow domestic political issues to trample common sense. Unfortunately, if I had to bet, this is a risk which will not disappear entirely for some time. Certainly not until we get much closer to the US 2020 presidential election. That said, we’ve been facing this issue for some time and history tells us, markets go through periods of relative calm even with this uncertainty on the table. This issue doesn’t need to disappear for the rand to get stronger.
2. The Argentina Crash
Simply put, the wrong guy won a primary election and markets panicked. Markets panicked because there are obvious similarities between Argentina and SA. President Ramaphosa seems to be on rather shaky ground within his own party. If he was to be ousted and replaced by someone from the “Zuma Faction”, you could expect a significant market reaction, both in terms of stocks and the local currency.
However, this has also been the case for some time and there is no reason to believe that what happened in Argentina has increased the possibility of South African political crisis.
Again, I would argue there is some scope for the rand to strengthen.
3. South African Economic Risk.
Eskom, credit ratings downgrades, slow economic growth and political instability are all reasons for a weaker rand. However, these issues were also around when the rand sat at R13,90 to the US dollar. Nothing has materially changed. The danger of any of these problems flaring up has certainly not increased by enough to justify a 10% weakening over 2 weeks.
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In short, it IS likely that the spike we’ve seen in USD/ZAR is overdone. That said, these problems are likely to persist for some time and many investors could benefit from having a larger share of their funds offshore.
My advice: In the current environment you cannot wait until the rand hits the perfect level to begin the process of moving funds offshore. Rather, you need to have the funds waiting in a holding account with your finger on the trigger waiting for the day, hour or even minute when the level is attractive enough to fire. The rand gives investors very short windows in which to execute your offshore transactions.
I’ve spoken at length about the benefit of using treasury agents rather than banks to move funds across border as they will allow you to target specific levels and leave your exit orders open in the market waiting to trade.
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Rand Swiss, Wealth Manager