South Africa Rand Falls Most Among Emerging Markets After Jobless Rate Climbs

Johannesburg, South Africa, Capital Markets in Africa — The rand fell to its weakest in a month after data showing theSouth African jobless rate at the highest in at least eight years added to concerns that economic growth may be slow to revive.

The rand dropped as much as 2.1 percent against the dollar and traded at 15.1716 by 4:38 p.m. in Johannesburg, the weakest since April 7 on a closing basis and the biggest loser among 24 emerging market currencies tracked by Bloomberg. Yields on the benchmark government rand-denominated bond due December 2026 pared declines to be little changed at 9.14 percent.

South Africa’s unemployment rate rose to 26.7 percent in the first quarter, the national statistics agency said Monday in the capital, Pretoria, the highest since the body’s survey began in 2008, as the faltering economy lost jobs in mining, manufacturing and construction. The country faces a credit ratings review next month by S&P Global Ratings that could lead to a cut to below investment grade status.

“South Africa’s unemployment rate remains exceedingly high by global standards,” Kevin Lings, a money manager at Stanlib Asset Management in Johannesburg, said in an e-mailed note. “The high rate of unemployment contributes to much of the social tension and anguish experienced in South Africa on a daily basis, especially among the youth. Increasing employment in South Africa has to be the number one economic/political/social objective.”

The MSCI Emerging Markets Currency Index declined 0.4 percent in its sixth day of losses as a Bloomberg gauge of commodity prices retreated 1 percent. Investors sold emerging-market assets after disappointing Chinese trade data and amid the prospect of higher U.S. interest rates.

“It looks like there’s a carry on from Asian markets where there was quite a bit of risk off,” said Phillip Pearce, a dealer at Treasuryone in Pretoria. “The rand is just a proxy for everything. It looks like there’s maybe a little bit more faith in the rate hikes later in the year” in the U.S., he said.

Foreign inflows into the South African bond market, which have previously helped to cushion the rand, continued to reverse last week as offshore investors sold 3.7 billion rand ($244 million) of the assets. Citigroup emerging-market strategist Luis Costa announced a long-yen position against the rand. He cited possible investor nervousness before S&P reviews its ratings on June 3, the pause in bond inflows and a trend reversal in iron-ore prices as potential pressure points for the rand in the short term.

Comments from the International Monetary Fund May 6 that South Africa’s budget targets may be hard to achieve and that the country faces a challenging economic environment are also weighing on sentiment at a time when the nation faces the prospect of its credit rating being downgraded to junk.

Source: Bloomberg News