Fed rate rise impacts the rand and South African investment

Fed rate rise impacts the rand and South African investment

South African investors are seeking solace in sterling’s stability as the US Federal Reserve prepares to raise rates.

Summary:

  • The much-anticipated Fed interest rate rise has curtailed the rand’s recent rally
  • South African investors have been struggling with a weakening currency since the start of the year
  • Revenue streams in stable currencies such as the GBP are proving to be investment essentials

Investors in South Africa have kept a close eye on forex markets of late.

Despite the relatively strong performance of the domestic property market, the sliding rand has caused ongoing economic difficulties.

Last week, the rand managed a five-day rally against the dollar, but this came to an abrupt end today (Monday, November 23rd), with imminent Federal Reserve interest rate hikes set to have significant repercussions for emerging markets.

The rand had hit a three-week high at 13.8900 against the dollar, following the central bank’s action to ease inflation pressures by raising the benchmark repo rate by 25 basis points. However, as trading began today, the rand fell 0.45% from Friday’s close to trade at 14.0125 against the dollar.

Not surprisingly, the immediate effect was felt most acutely on the equities market. The JSE securities exchange’s Top-40 futures index had dipped 0.4% by 0700 GMT. Bonds also declined, with the yield on a 10-year investment adding just 3.5 basis points to 8.45%.

Now the central bank may struggle to stop the rand’s slide, which has weakened almost 18% so far in 2015 – primarily on the ongoing fears of the sell-off prompted by a US interest rate rise.

“The probability of a rate hike by the Fed … has risen since last week,” Standard Bank said in a note.

It means South African investors are seeking income streams in more stable currencies. Over the past six months, property investment in the UK has become an increasingly popular option – especially as yields in the UK are currently at record highs.

Find out why international demand for UK property investments has never been higher in our latest ebook:
"Investing in UK Real Estate"

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