South Africa’s Rand Shines Bright Amid Emerging Market Currencies
After a tumultuous year, South Africa’s rand has emerged as one of the top-performing emerging market currencies, defying expectations. According to analysts at Credit Agricole SA and Ashmore Group Plc, this upward trend is likely to continue.
A Resilient Currency
Despite a steep decline in December, the rand has managed to hold its ground, surrendering only a 2% year-to-date gain in 2024. This places it fifth among 24 major developing-nation currencies tracked by Bloomberg, behind the Malaysian ringgit, Hong Kong dollar, Thai baht, and Peruvian sol.
Supportive Factors
The rand’s relative resilience can be attributed to several factors, including rising investment levels, lower inflation, and structural reforms. A cautious central bank has maintained a favorable interest-rate premium over the greenback, making the rand an attractive option for investors.
Carry Appeal Remains Strong
“South Africa’s carry appeal remains strong as inflation and expectations stay anchored,” said Sebastien Barbé, head of EM research and strategy at Credit Agricole. This strategy, which involves borrowing dollars to buy higher-yielding currencies, has contributed to the rand’s appeal.
Forecasted Total Return
Bloomberg calculations predict a total return of 15% for the rand in 2025, based on expected interest rates and exchange-rate values. Credit Agricole forecasts an exchange rate of 16.40 rand per dollar by the end of 2025, implying a gain of about 13% from the current level.
Investment and Infrastructure
The value of fixed-investment projects in South Africa has surged to 794 billion rand ($42 billion) in 2024, up from 193 billion rand in 2023. This increase is driven by progress on infrastructure and energy reforms, including public-private partnerships at the country’s biggest port.
Economic Activity
Electricity provider Eskom Holdings SOC Ltd. has reduced disruptions, further supporting economic activity. Annual inflation remains around the lowest level in more than a decade, providing the South African Reserve Bank with room to cut interest rates.
Room for Growth
Infrastructure improvements are likely to benefit the country and its currency further, according to Gustavo Medeiros, deputy head of research at Ashmore. “Logistic reforms and a visible recovery in tourism inflows are creating tangible growth and foreign-exchange benefits.”
Bond Market Inflows
Inflows into South Africa’s bond market are on track for the highest level since 2019, according to JSE Ltd. data. Non-residents’ net purchases of local debt totaled 41.4 billion rand in the third quarter, up from 13 billion rand in the previous three months.
Fundamental Strength
“South Africa is showing it can deliver on the fundamentals,” Credit Agricole’s Barbé said. “The data reflects the foundation for continued momentum into 2025.” With its strong carry appeal, rising investment levels, and improving infrastructure, the rand is poised for a promising year ahead.
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