“Rand Slips Again: Investors Find Caution to Be Contagious

Market Sentiment Ahead of Key Decisions

Rand Slips Again: Caution dominated emerging markets on Monday, with investors closely watching local central bank policy decisions and awaiting cabinet appointments in South Africa. Additionally, the latest sanctions on Russia added to the market’s cautious mood.

South African Market Performance

Rand and Government Bonds

In Africa, the South African rand slipped 0.7% after trading flat for nearly three straight sessions. The yield on the country’s benchmark 2030 government bond climbed over 11 basis points to 9.8%. Traders were particularly focused on the newly formed government of national unity’s (GNU) cabinet appointments. The rand was trading at R18.14/$ just before noon on Monday.

Rand Slips Again: Recent Rand Performance

The rand advanced last week, breaking below R18/$ on Wednesday when Cyril Ramaphosa was inaugurated as president. It ended the week at R17.95/$ late on Friday, near its strongest levels in almost a year.

Paul McNamara, investment director at GAM Investments, noted that with valuations cheaper than peers, South African assets have the potential to outperform. However, he cautioned that “any new government will have very limited political capital for ‘orthodox’ policies… the plan and personnel are likely to be given a pass, and concerns are about what can be realistically implemented.”

The local currency and equity index have recovered from losses in early June following national election results where the ANC lost the parliamentary majority it had held for three decades.

Impact of EU Sanctions on Russia

Russian Rouble Performance

The European Union agreed on a new package of sanctions against Russia over its war in Ukraine. These sanctions included a ban on reloading Russian liquefied natural gas in the EU for further shipment to third countries. Following this, the rouble strengthened to 87.95 against the greenback, according to LSEG data.

Other Global Market Movements

India

Investors tracking the JPMorgan Emerging Market debt index are bullish on India, having allocated 3.6% of holdings to the country’s bonds as of the end of May. This comes ahead of India’s inclusion on the index this week, as noted by Morgan Stanley. The yield on India’s benchmark 10-year bond stood at 6.95%.

Egypt

The World Bank announced $700 million in budget support for Egypt to boost private sector participation, macroeconomic and fiscal resilience, and greener growth. Despite this, the Egyptian pound weakened by 0.7%.

Ghana

Ghana’s cedi remained little changed after the West African country’s government reached an agreement in principle with bondholder groups to restructure its international debt.


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