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Rand weaker, stocks hit three-and-a-half-month high

Improved global sentiment, rand hedges lift stocks.

The rand weakened in late afternoon trade on Monday as investors awaited Wednesday’s budget, when the finance minister is expected to unveil plans to shore up state-owned power utility Eskom.

Stocks rallied, with the Johannesburg All-share index and Top 40 index touching three-and-a-half-month and four-and-a-half-month highs respectively, with investors growing hopeful the United States and China will agree a deal to end their trade war.

At 1530 GMT, the rand was down 0.43% at R14.13 per dollar compared with Friday’s close of R14.07 in New York.

Since the resumption of nationwide rolling power cuts by Eskom on February 10, the rand has lost nearly 4%, breaching the psychological R14.00 mark as the crisis at the cash-strapped utility put a possible credit downgrade to junk back on the radar.

Although Eskom paused the blackouts on Friday for the first time in five days, it warned its creaking infrastructure could buckle at any time.

Finance Minister Tito Mboweni is expected to unveil a rescue package for Eskom in the annual budget on Wednesday.

“The size and structure of the provision of support for Eskom will be a critical consideration,” RMB analysts Mpho Tsebe and Elena Ilkova said in a note.

“Eskom remains a significant fiscal risk and providing it with financial support might be credit-neutral for the sovereign, only if this is accompanied by broader measures to stabilise the power utility,” they added.

Government bonds firmed, with the yield on the benchmark paper due in 2026 down 2.5 basis points to close at 8.855%.

On the bourse, the Johannesburg All-Share index ended the session up 1.16% at 55,259 points, a level last seen on November 2, while the Top 40 index climbed 1.18% to 49,019 points, a level it last touched on October 4.

“A little bit more confidence coming back into the market, that the US and China can do a trade deal, so optimism is back again,” Cratos Capital equities trader Greg Davies said.

US and Chinese officials will continue negotiations in Washington this week after both sides reported progress at talks in Beijing last week.

Davies added that weaker rand was also helping the market “because the rand hedges and all the resources are climbing.”

Rand-hedged shares make the bulk of their revenue outside South Africa and tend to rise as the currency weakens.

Royal Bafokeng Platinum topped the gainers, climbing 10% to R33, while market heavyweight Naspers rose 1.93% to R3,11 and Mediclinic gained 1.64% to R58.09.

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