Rand claws its way back from six week lows, stocks up

Ailing economy to cap further gains.

JOHANNESBURG- South Africa’s rand clawed its way back from six week lows against the dollar on Tuesday as a firmer oil price lifted commodity currencies, but analysts said concerns over the ailing domestic economy would cap any significant gains.

Analysts said Africa’s most industrialised economy was not yet out of the woods after dodging a downgrade from Moody’s last Friday, with Fitch and Standard & Poor’s set to do their own reviews over the next couple of weeks.

The rand fell more than 1% to 15.3700 versus the greenback earlier in the session, the softest since March 29, but climbed 0.47% on the day to 15.111 by 23:55.

Rand sentiment is still quite weak,” ETM market analyst Jana van Deventer said. “The market is not convinced that the efforts from government and business is entirely enough to prevent more negative credit ratings action.”

Moody’s, which had placed South Africa on review for a downgrade, maintained its rating at two notches above sub-investment grade on Friday, in what the government has touted as recognition for its efforts with business and labour to tackle constraints to growth.

But data on Monday showing a increase in unemployment rate to its highest since 2008 doused most of the optimism.

On the bourse, stocks were higher with Sappi extending sharp gains to the second straight session after the paper maker reported a doubling in quarterly profit on Monday.

Shares in the world’s biggest maker of glossy paper used in magazines rose 6.38% to R69.68, bringing gains over the past two days to more than 10%.

The All-Share index closed stronger at 1.03% to 57,875 with the benchmark Top-40 index rising 1.26% to 45,707.

A strengthening dollar pulled up local rand-hedged stocks, or those with operations abroad. The “rand hedges” are companies that reap the bulk of their revenue outside of South Africa, making them less sensitive to weakness in the currency.

Luxury goods maker Richemont picked up 1.23% to R97.31 while British American Tabacco was up 1% at R926.67.

“With the weaker rand it seems like there is still a demand for companies with strong foreign earnings,” said Afrifocus Securities portfolio manager, Ferdi Heyneke.

Government bonds ended slightly weaker after a weekly auction generated fairly lukewarm interest. The yield on debt maturing in 2026, the benchmark for the secondary market, added 3.5 basis points to 9.18%.

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