South African rand’s volatility highlighted as it falls against dollar

South African rand’s volatility highlighted as it falls against dollar

The rand slumps once again as South Africa’s economic growth predictions are cut – will this signal a move overseas for the country’s investors?

Summary:

  • The South African rand has fallen to R13.6 against the US Dollar in the past week, edging closer to September’s all-time low of R14.1
  • A currency renowned for wild fluctuations, this recent slump comes after the country’s finance minister cut economic growth predictions
  • As capital growth stutters in international terms, will more South African investors look for a rand-hedging asset in overseas property markets such as the UK?

It’s been a difficult 12 months for South Africa’s currency, and it’s now been dealt a further setback.

Over the past seven days, the rand has dropped from R13 to R13.6 against the US Dollar, descending closer to the all-time low of R14.1 it hit in September.

This latest fall for a currency infamous for its volatility can be attributed to the announcement of the Medium-Term Budget Policy Statement by Finance Minster Nhlanhla Nene on 21st October. In a move that made for a bleak outlook, Mr Nene cut his economic growth projections for the year to 1.5% from 2%, and chopped 2016’s growth from 2.4% to 1.7%.

In the year to date, the rand is down a total 15% against the dollar. Just two years ago it depreciated by 20% and has struggled to recover since, hitting that record low of R14.1 last month.

Naturally the rand’s alarming performance has caused concerns among the investor community in South Africa. Its struggles can perhaps be best illustrated in the country’s real estate sector; despite property prices growing by 27% in the last four years, values have actually fallen by 23% over the same period, with prices not rising quickly enough to offset the rand’s spiralling devaluation.

Therefore, the time may now have come for many South African investors to seek protection with a rand-hedging asset overseas. The UK is the country’s largest booking centre for international property investment, with Britain’s real estate offering the diversity, stability and high yields in a strong currency that many investors are searching for.

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