Invest with and away from the rand…..

Our Rand continues to surprise

Just when you think the rand is heading in a particular direction it turns the corner and surprises.

A while ago just after Minister of Finance Nene was fired the rand easily weaken to nearly R17 to the US$. We all then assumed it would continue with some predictions of R20 to the US$. Panic struck and many South Africans took money out of the country in the fear that the rans would devalue dismally.

But then the opposite happened the rand took a turn and started to strengthen over a short period of time to levels in the range of R13 to R12.

When President Zuma reshuffled has cabinet recently firing our Minister of Finance, Pravin Gordhan we saw the rand weaken off again but this time it settled in the R14 range and never got anywhere near the previous weakness.

Now we have been downgraded with a key political event taking place in December and see that the rand has now strengthened to mid R13 levels.

Can we make sense of the direction that the rand chooses. Back to fundamentals. The rand should depreciated at a rate of the difference in inflation of our trading partners. We do most trade with Europe so technically we should weaken by around 4% per annum against the Euro. The same applies to the US and other countries.

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Pundits have calculated that the rand is probably 30% under valued. So there is a lot more potential for it to strengthen than weaken if technical analysis is still valid.

A weak rand has some positive effect on our exports but at the same time hurts more on our imports and where we see it directly is in the petrol price which is heading to over R14 a liter next Wednesday. This in turn fuels inflation which make everything that much more expensive.

So…what should you do? Essentially you should spread your exposure between local and offshore investments.
The offshore exposure can be made indirectly through range hedge stocks such as Billitons and Anglo America. Even Resource ETF’s would provide some hedge against the rand.
Otherwise there is a huge universe of options to invest directly. This require more homework so need more understanding and detail.

The rand will continue to surprise and to work with it you need to invest in it and away from it.

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