July 18, 2019

Rand sinks as downbeat Moody’s, Naspers spur perfect storm

South Africas rand headed for its biggest drop against the dollar since 2016, buffeted by headwinds including a downbeat assessment of the economy by Moodys Investors Service and a plunge in the biggest company on the Johannesburg Stock Exchange.

The currency sank as much as 3.4 per cent against the dollar after Moodys said the pace of South Africas fiscal consolidation will be slower than government forecasts as weaker-than-expected economic growth and a rising public sector wage bill act as fiscal headwinds. The statement came shortly after central bank Governor Lesetja Kganyago said growth projections were “worrying” and hinted policy makers arent about to raise rates.

A drop in commodity prices and concerns about the governments plan to seize land for redistribution also weighed on the rand at a time when Turkeys woes are damping investor demand for emerging-market assets.

“Its a combination of factors,” said Warrick Butler, a currency trader at Standard Bank Group Ltd. “Take your pick.”

Naspers, which accounts for 18 per cent of the benchmark stock index, tumbled after Tencent Holdings Ltd., in which it owns a 31 per cent stake, missed earnings estimates. That raised concerns about outflows from the stock market. The benchmark index of equities fell the most since May.

The rand was 3.1 per cent weaker at 14.6931 per dollar by 1:41 p.m. in Johannesburg, bringing its decline this month to 9.7 per cent. Yields on benchmark 2026 government bonds climbed 10 basis points to 9.04 per cent.

“Factors that have harmed the currency today includes news from Turkey, which points to a deepening of the crisis there, despite the liras bounce back today,” said Andre Cilliers, a trader at TreasuryOne Ltd. On the domestic front, a statement by the ruling African National Congress on land expropriation “put property rights back in focus and all the uncertainty that comes with it,” he said.

South Africa must amend its constitution to limit land ownership to 12,000 hectares per farm owner and white farmers who own more than that should cede the rest to the state without compensation, News24 said, citing ANC Chairman Gwede Mantashe.

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