Profit-taking pauses rally in rand, stocks

Rand holds steady under the R17 level.
Banks also gave their previous session's gains back, declining 1.1%. Image: Waldo Swiegers, Bloomberg

South Africa’s rand was largely flat on Thursday, pausing from a recent rally as investors took profits and awaited further signs of a global economic recovery.

At 17:30, the rand traded at R16.94 per dollar, 0.04% weaker than its close on Wednesday, when it climbed to an 11-week peak of R16.89.

Governments around the world have gradually started to lift tough lockdown measures imposed to contain the coronavirus which has infected more than 6.43 million people globally and killed over 380 000.

In South Africa, the government on Monday partially lifted a lockdown that has battered the economy which was already in recession before the coronavirus crisis, allowing mines and factories to run at full capacity.

Traders kept mostly on the sidelines awaiting the widely watched US unemployment figures due on Friday.

“The rand has continued to post gains over the most recent sessions, having extended these to a recent best level of R16.89,” said analysts at Nedbank in a note.

“Crucially, it has thus far consolidated these gains to hold steady sub the R17 level. There will be much focus on the US NFP [non-farm payroll] data tomorrow, but the technical indicators for the local unit suggest the potential for additional gains.”

In fixed income, the yield on the 10-year government bond due in 2030 was up 7.5 basis points to 8.74%.

Stocks also paused on Thursday after hitting a more than three-month high in the last session, as investors locked in profits from recent strong gains in banks and shopping mall owners.

The Johannesburg All Share index fell 0.74% to 53 250 points, while the Blue-Chip Top 40 Index closed 0.83% lower to 48 891 points.

Banks also gave their previous session’s gains back, declining 1.1%.

“Today it’s just a case of taking some profits,” Independent Securities trader Ryan Woods said. “There was no real reason other than one would have to say it was probably sector rotation.”

South African lender FirstRand said on Thursday its full-year profits were likely to be more than 20% lower than in 2019 due to falling revenues and a spike in bad debts, pushing its shares down 2.69%

Overall, global stock markets have been moving higher since hitting a low in mid-March as countries implemented coronavirus lockdowns. With the majority of countries lifting the restrictions, investors have been cheering signs of a global economic recovery as businesses begin to reopen.

The All-Share index has jumped more than 40% since a low of 37 963 points hit in March 19.

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Profit-taking is the lazy journalist’s reason for a correction. How do you know it wasn’t loss-prevention, or the limitation or prevention of further losses that provided selling pressure? There is a buyer for every seller.

The profit-taking narrative implies that participants know what is going to happen next, that they can predict the future. Clueless journalists give clueless speculators way too much credit!

This was a comment i left i think to an article from a day or 2 ago, that is likely more relevant to this article, with some minor changes.

Those individuals planning on a 25:1+ ZAR future and positioning themselves and portfolios accordingly will be very well off going into the medium and long term future.

The ZAR always attracts extremely passionate opposing views and likely always will. It is very attractive to trade globally by pro traders as a currency pair, due to its large daily turnover relatively speaking. Also it is extremely volatile and trends strongly when it is moving.

I am a ZAR bear and have been for a very long time well over 20 years. I am not a day trader so do not care about irrelevant daily moves, such as providing a comment for every blip up or down. We position ourselves and our clients on a long term basis, where the bias is bearish ZAR, this is based not on a dislike of RSA or anything unpatriotic as some seem to imply, i am not a rand basher. I look at the ZAR clinically as an instrument to trade and use to protect real business, investments/ savings and pensions in SA and overseas, but it is one of many such strategies/ instruments you can use.

The trend is long term bearish and nothing is there to suggest we are anywhere near a reversal, look at the charts. If i told you the ZAR would be 17 today on the 2nd of January you would have laughed at me and accused me of rand bashing.

On a yearly basis the ZAR produced a bearish reversal at end 2019 – as such we initiated a position of shorts in early January, part technically based and the balance considering the underlying disastrous and deteriorating fundamentals of the economy – our year end target under normal circumstances was 16.50, we expected a grind lower with the usual spikes and volatility along the way. What we got was covid 19 and a 3 month crash into end of March – on the 2nd retest of the rand against the 19.30 level, there was a serious negative divergence, accompanied with a risk on all over the world – so from end of April remaining shorts were closed aside from long term positions, which remained but had profits locked in with collars.
From end of April through today we have been ZAR bullish and positioned accordingly, you do not get many gifts like this, although i fear this volatility will become more frequent. Currently the ZAR has only retraced 43% of the years losses. Yesterday we closed over 50% of our long positions and have started to move slowly into short positions. So moves up or down in the rand, are because tens of thousands of market participants like myself, are closing positions and taking out new ones. But for every position i am taking on a short basis there is a corresponding buyer taking the opposite position to me and vice versa.

We are watching the 50% and 61.8% retrace as possible maximum extremes, which could see the ZAR pull all the way back to 15.90/ 16.00. New shorts remain collared until the technical criteria are met and the mood changes, to a risk off situation again. Then the appropriate side of the collar is removed – if that be in a bullish situation, which would be only short term then so be it. This is just my opinion. I am forced to take views on the currency 1/3/5/10+ years out especially on big clients.

In my opinion the 25+ boys (as referred to on the other article) are the long term smart money and informed individuals.

The SA economy was a train wreck in January we had stage 8 load shedding prior to covid – the economy is now 10 times worst, so it stands to reason that the exchange rate being the currency of a nation will reflect this, until such time as drastic and complete 180 degree turns are made on hundreds of government policies – this cannot happen now and will be forced but not for many years to come, as such a long term bear i remain, but i will still trade dramatic moves in either direction even if only temporarily. Such as our recent longs.

The old adage used to be SELL in MAY and GO AWAY. Maybe due to covid 19 re-opening of lock down euphoria, this has been delayed by a month. I firmly believe a turning point is upon us in the next few weeks – so maybe this year it will be sell in June and run like hell. I expect a very ugly 2nd half of 2020.

The market can remain ‘wrong and irrational’, far longer than you can remain solvent… cannot remember who said that but very true. At the moment we expect to be back to neutral shortly in all markets, with some exceptions and between the middle of next week to the week ending 19th June give or take a few days, dependent on unfolding market conditions, to be very short our core markets one of which for some clients includes the ZAR, with stops placed just above recent and coming highs as we blow off into this reactionary counter trend.

A prudent investor would trail those stops if it moves in their favour, or get stopped out. It is these millions of daily transactions taking place all over the world that dictate the price at any given time.

I fear if the government does not reverse so many utterly destructive investment policies, none more so than the lock down, which Imperial College has even admitted was wrong – so much damage has already been done, that 25 is way to optimistic even in the medium term. My personal opinion is that we are reaching a tipping point into an accelerating devaluation, where unless drastic measures are taken, not only does 25 become a distinct possibility, but will become a reality, as can 50/100 and 500 over the coming years.

The same people referring to the 25+ boys now, will likely be referring to: ‘where are the 75+ boys now, just after the ZAR has pulled back from 55 to 40 a few years or less from now.

Just my opinion, lets see how this pans out, we can discuss again in 3 years.

I am in complete agreement and have only one question.

In SA what instruments, if any, are available for a normal person to take currency positions without being killed by costs?

Kruger, bitcoin, cocaine are all dollar based positions

Hi. We work generally with large corporate and HNW individuals with a foot in and a foot out of RSA so we tailor make each solution. However, there are some basic steps you can take and it is best to chat to your bank/s an or your broker. However, some things which seem to work are see below – these work where you abide by SARB rules which now are very generous to the man in the street and only likely limit 0.1% of the population.

Effectively you get your allowance from the SARB with a SARS clearance that it is free and clear to move – then your bank will open a local foreign currency account in a currency of your choice. You move your cleared RAND amount into that account in the currency of your choice – at the moment, probably USD recommended. There is no danger in a stock going bang, only the currency fluctuation is the risk. So if you believe the ZAR is on a slippery slope, having your core nest egg in here, will bring a smile to your face every time the ZAR performs a face plant.

Another local instrument would be a gold ETF investment in the metal – then your exposure is 100% USD but subject only to the movements in the gold price not company specific risk such as gold miners – my opinion is gold is a good place to be for the coming 5-10 years with an upward bias, bar the fluctuations which occur in the process. Here the benefit is not only USD, but a USD asset that appreciates potentially and not just against the rand, so if you like a geared ZAR protection. More gearing go into a portion of high quality gold stocks. ABSA do a good one in NEW GOLD … aside from this without looking at your position and portfolio this is only my opinion and friendly advice – please check and qualify what i am saying – standard disclaimer 🙂

Apply online for a Currency Investment Account – Absa
http://www.absa.co.za › bank › international-banking › curre…

Foreign currency investment accounts are governed by South African exchange control rules and Regulations. As the exchange rates fluctuate on a daily basis, the rand equivalent of the foreign currency amount deposited in the account can’t be guaranteed. The account can be opened in 18 different foreign currencies

http://etfcib.absa.co.za/products/exchange%20traded%20funds/commodities/newgold/Pages/default.aspx

End of comments.

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