On Monday, 9th of March 2020, the South African rand fell to a four-year low as the local market followed a global sell-off of riskier assets caused by the impacts of the coronavirus and the oil-war between Russia and Saudi Arabia.
“Consequently, during the past couple of days, the rand has weakened to above R16/$, which is a decline of almost 13 percent since the beginning of the year,” Stanlib’s Chief Economist, Kevin Lings, said in a business report.
In addition, All Share Index on the Johannesburg Stock Exchange fell 6.23 percent and the Top 40 Index tumbled 6.57 percent. This made Neil Wilson, the Chief Market Analyst for Markets.com, to described the day as “Black Monday” on the markets.
In a news report, Wilson said that the oil price shock totally unnerved investors, while Italy’s decision to quarantine 16 million citizens left markets feeling like the coronavirus outbreak was out of control.
Aside from the impacts of the fast-spreading coronavirus on the global market, the shocks from the oil market, which had come as a result of a price war between Russia and Saudi Arabia, have also exposed the weaknesses of the South African rand.
According to George Herman, the Chief Investment Officer of Citadel Investment Services, the company had gradually decreased its holdings in bonds in line with the country’s credit rating as the deterioration of South Africa’s fiscal metrics had become a source of concern. Citadel is a leading investor in the world’s financial markets, based in South Africa.
Herman stated that “the reason that so many investors may be feeling particularly anxious about this latest bout of turbulence is because we haven’t experienced normal, meaningful, cyclical retracements for the past decade, as central banks have continuously flooded markets with free cash.” He went on to add that “no amount of monetary or fiscal stimulation can solve a virological and logistical problem.”
Analysts claim to have warned the country of the local currency’s vulnerability to external shocks due to the nature of South Africa’s fiscal environment and notable economic pressures.
“We’ve been warning for some time that the imprudent fiscal environment and fundamental pressures that exist in South Africa suggest the rand will be amongst the most susceptible to an external shock, and this is exactly what appears to be materializing at the moment.” ETM Analytics economists said in a note.
As of the time of writing of this article, the local currency stood at 16.0380 rand per dollar.