Disconcerting Decline in South African Currency

Stephen L Kanaval  |

Just recently, I was alerted by a smart trader of a sharp decline in the South African Rand. Admittedly, a small country currency is an obscure place to be looking for clues and direction for global markets, but the current volatility has unsettled all markets evidenced by a large decline over the last few trading sessions in US Equities. It calls to mind the recent decline we had in US stocks during August, when the Rand and the Malaysian Ringgit were getting squeezed and acted as the eye of the storm for volatility around the globe.

These far away currencies often are watched by professional traders as exchange rates traveling outside the normal bands of trading ranges. They act as a kind of weather vane atop the barn as the winds blow. The winds during August were blowing wildly, and these odd currencies came into gun sight focus. I am wondering if the volatility in the Rand has a hidden meaning as we transition into Holiday trading. Every year around this time the ”A” Team of portfolio managers and traders pack up for the holidays and turn the car keys over to the understudies who are left with a volatile bailing each and every year. I expect this to be no different this holiday season, and the Rand will be what I’m watching.

So, looking at the Rand movement on a percentage basis, it has declined about 30% from the highs in early 2015. Yet, an alarming 16% accumulated last week. This accumulation came on the heels of sacking the country's Finance Minister, Nhlanhla Nene, and the gathering uncertainty of where the country’s finances are headed next. The Rand proceeded to take a heavy blow, down as much as ten percent since last Tuesday—a record low value at more than 16 to the dollar.

Holiday trading is always interesting and with markets near unchanged for the year, portfolio managers who take big risks during the last few days of the year are either up huge or indifferent about being canned. Then you have the other veterans who are packing it in to take some time off with the family and prepping their teams for their 2016 strategy.

2015 will be remembered as a flat year where only a few stocks like Fang delivered performance. Most benchmark index measures will be + or – a few percentage points and that should make it easy to distinguish between good managers and bad managers.I would guess that those good managers are likely sitting at a coffee shop trying to figure out what to get the spouse for Christmas and checking the value of the Rand on the smartphone.

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