JOHANNESBURG – South Africa’s rand traded firmer early on Tuesday, recovering alongside fellow emerging markets currencies flattened in the previous session as investors worried about the rapid spread of the coronavirus outside of China.
At 0900 GMT the rand was 0.75% firmer at 15.0530 per dollar. It had earlier tumbled to a four-month low of 15.1900 in a global risk sell-off worsened by growing bets that Wednesday’s budget may not be enough to prevent a downgrade of South Africa’s credit rating to “junk” by Moody’s.
“It was not surprising to see the rand under pressure at the start of the week, especially as Wednesday’s risk event draws closer,” economists at ETM Analytics said in a note.
“South Africa’s idiosyncratic risks have weighed heavily on investor sentiment. In particular debilitating nationwide power cuts, an unsustainable debt trajectory and a lack of evidence that there’s political will to implement the economic reforms.”
A Reuters poll this month forecast 2020 GDP growth of 0.8%, while a survey last week suggested the Treasury will raise taxes in the Feb. 26 budget to increase revenues and ward off the loss of South Africa’s last investment-grade credit rating.[nL8N2AL29L]
Traders said the recovery in the rand and other emerging market currencies was due to profit-taking after the U.S. dollar marched higher as investors rushed for safe-havens on Monday, plus positioning for further falls after the budget speech.
Stocks, which recorded their largest one-day fall in more than a decade on Monday, opened higher, with the Top-40 index up 1.3% to 49,942 points.
Supermarket chain Shoprite missed half-year earnings forecasts, with diluted headline earnings per share (HEPS) down 2.6% to 372.4 cents in the 26 weeks ended Dec. 29, as currency devaluations in the rest of Africa and store closures in Nigeria weighed. [nL5N2AP0LB]
Bonds opened firmer, with the yield on the benchmark 2026 government issue down 2 basis points to 8.815%. – Reuters Africa