Johannesburg, October 13 – The rand jumped to two-week highs on Friday after a court ruling that upheld
reinstating corruption charges against President Jacob Zuma, while the rally on broader emerging markets continued.
MSCI’s emerging equity index inched to new six-year highs on back of encouraging Chinese trade data, record high world shares and a further fall in U.S. yields, while a flat dollar encouraged emerging currencies higher on the day.
JPMorgan’s ELMI Plus currency index closed Thursday at a three-week high and local debt yields slipped 3
basis points on average over the week, to hover just above the 6 percent mark.
The rand firmed almost 1 percent, amidst Supreme Court decision to uphold a High Court ruling that
reinstated graft charges against Zuma. Bond yields slipped to a one-week low.
“I’m not surprised the market has taken it positively, but the issue is really who is going to take over from (Zuma) at the end of the year. Whether or not he gets his just desserts is a side issue,” said Paul Fage, senior emerging markets strategist at TD Securities.
He was referring to the ruling African National Congress’s December conference at which Zuma will be replaced.
The emerging markets rally is down to this week’s dollar retreat – the greenback has lost 0.8 percent this week against a basket of currencies – but the party could be scuppered if data due later in the day reveals a pick-up in U.S. inflation.
On the other hand, data earlier on Friday showed strong growth in Chinese exports and imports – crucial ahead of next week’s 19th Communist Party Congress.
That helped the yuan to three-week highs, putting it on track for a weekly 1 percent gain versus the dollar. That
in turn lifted other Asian currencies, especially after Singaporean data reinforced the picture of robust growth across
the developing world Morgan Stanley analysts told clients they remained bullish on emerging markets, adding: “We remain of the view that EM currencies will be resilient in the face of gradual moves higher in U.S. yields, considering the strong growth momentum and valuation support many emerging markets.”
One of the exceptions to this week’s emerging market rally is Turkey, which is involved in a visa dispute with the United States. The lira rose slightly on the day but is set for a fifth week of losses.
Although the visa row seems to be ebbing, Morgan Stanley wrote: “We stick with our ‘dislike’ stance on lira”.
Investors are also closely watching Mexican markets, which could suffer hefty losses should talks on renegotiating the
NAFTA free-trade deal fail. Sources with knowledge of the talks called the atmosphere “horrible”, with Mexico saying it is already working on a Plan B.
The peso is trading near five-month lows and Mexican stocks have fallen 0.7 percent on the week so far.