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South Africa’s Record Power Cuts Turn Rand Bulls’ L...

Business Maverick

Business Maverick

South Africa’s Record Power Cuts Turn Rand Bulls’ Lights Off

(Photo: iStock)
By Bloomberg
30 Jun 2022 0

Power outages in South Africa have caught rand bulls off guard, with at least three long-rand trades hitting stop-loss levels within a week as the rand tumbled to a 20-month low.

Societe Generale SA, Credit Agricole CIB and HSBC Holdings Plc recommended short-dollar positions versus the rand last week, citing supportive factors such as the central bank’s hawkish stance, relatively low inflation and an expected recovery in China’s economy that would boost demand for South Africa’s raw-material exports.

But rolling blackouts imposed by Eskom Holdings SOC Ltd. put paid to that as investors fret about the effect on an economy already strained by the pandemic, catastrophic floods and destructive protests. The rand is down 3.8% this week, the worst performer among 23 major emerging-market currencies tracked by Bloomberg.

The South African currency has been hard-hit by the Eskom news, though the country’s electricity crisis is nothing new, said Cristian Maggio, the London-based head of portfolio strategy at TD Securities.

“South Africa has been dealing with power shortages for years,” Maggio said. “Only the market seems to have forgotten because of Covid, and other priorities that crept to the forefront.”

Rand's plunge this week catches bulls off-guard

Credit Agricole recommended going short the dollar versus the rand on June 21, entering the trade at 15.9456 rand per dollar, with a stop-loss at 16.2684. It was stopped out of the trade on Wednesday when the rand weakened to 16.2965, taking a loss of 1.9%, according to Sebastien Barbe, head of emerging-market research at the lender.

SocGen entered a similar trade, also on June 21, with a stop loss at 16.35, while HSBC opened a short-dollar-rand trade idea on June 24 at 15.92, with a stop at 16.30. Both stops were breached on Thursday when the rand slumped to 16.4736, the weakest level since Oct. 2020.

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