Carry trade appeal helps South African rand, stocks surge

JOHANNESBURG: The South African rand firmed on Monday, adding to gains at the end of last week as yield-seeking investors made tentative bets on the volatile currency, while stocks moved up.

At 1500 GMT, the rand was 0.74% firmer at 15.0450 against the US dollar.

"The rand continues to dance to the global tune as 'risk off' and 'risk on' reactions vary on a regular basis. This has been the tale of most Emerging Market (EM) currencies throughout 2020 and now 2021," DailyFX analyst Warren Venketas said in a note.

"With thoughtful government policies in 2021, the rand could climb further up the ladder as the leading EM currency as investors continue to seek alpha in the form of high yielding and beta markets such as South Africa."

With interest rates set to remain steady in South Africa, even as monetary and fiscal policy in the United States and Europe remains expansionary, the rand is an attractive "carry trade" - offering healthy returns against near-zero rates in the developed economies.

But traders warn these flows may be short lived with South Africa's fiscal risks coming into sharper focus with a slew of economic data and the budget near the end of the month.

Stocks ended higher on Monday as platinum and diversified mining companies reinforced a positive sentiment fuelled by a rally in global shares and the arrival of the first COVID-19 vaccine doses in South Africa.

The benchmark all-share index closed up 0.52% at 62,797 points, while the bluechip index ended up 0.62% at 57,670 points.

The diversified mining index surged 1.66% and the platinum mining index was up 2.92% as price of some commodities and precious metals gained.

Bonds firmed alongside the rand, with the yield on the benchmark 2030 government issue down 8.5 basis points to 8.650%.