The question on lips everywhere seems to be ‘Where is the Rand headed?’
And little wonder when one considers the performance of the Rand relative to the major currencies over the last little while.
David Leslie of Belmont Asset Management comments, “Let me say first off that we do not predict short term currency fluctuations, as these are subject to many random variables. But what I will say is that the Rand, as an emerging market currency, essentially tracks commodity prices in the medium term.” Likewise, fellow BRICS member Brazil’s currency shows a close correlation with commodity prices, so it’s no surprise that the Rand has closely tracked the Real over the last five years. When we experience a period of downward pressure on commodity prices, the Rand also comes under pressure. If the commodity cycle turns, so will the Rand. Yes, there are aspects of political risk and instability, which do lead to short term deviations, but over the longer term commodity prices offer the closest correlation. If signs of resuscitation emerge internationally, by extrapolation this would bode well for the Rand.
‘Over the medium to long term, however, the Rand should continue to devalue relative to developed market currencies. Our advice is to hedge your bets and diversify to mitigate this risk. This, coupled with superior stock selection based on value, quality and a long term investment view should ensure good returns.’