🇿🇦 Mzansi Market Memo — Sunday Special Edition

Happy Sunday gents and gentleladies,

Today we get into a a Sunday thought piece: the ZAR and where South Africa goes from here.

On Thursday 24 July, an executive asked me whether they should hedge the Rand below R18 to the dollar. This was my short response:

Hi XXX, 

My thoughts are that USD/ZAR is at peak for the year and we will see weakening from here. USA tariff effects plus latest policy on ANC leaders. Based on that, I think it’s worth us hedging against a weaker rand over next 6-12 months. Speculative but I don’t see a reason for current level besides a weaker dollar.  

My best,

Rayhaan

The above is months of news packed into three and a half sentences that reflect more than just the exchange rate.

So let’s unpack.

We start at home, and boy, has it been rough

The first cracks in the GNU came through at the beginning of the year with the budget speech drama. The DA showed its colours by trying to stop the budget to get other concessions. The ANC in turn showed the public that the marriage is open to third parties. The Rand didn’t like either of these plays.

Then we had the unauthorised travel. To Mr President, an open-and-shut-case.

Then Mr President’s buddies decided to pull a fast one. The public didn’t like that, nor the DA. Choosing not to immediately suspend Mchunu was really… dumb. I’m all for investigations and innocent until proven guilty, but come on man, you have to take measures when the Minister of Police is thrown into one of the biggest scandals of the year.

Sidebar: I wish I could say it was the biggest scandal of the year but it feels like we’re in a telenovela at this point.

Political tensions + police corruption of the highest order? Not exactly music to the ears. And in this case, the ears of major foreign investors, the SARB and pretty much everyone in South Africa.

Ok politics = bad, but what about economics?

In the first quarter of the year GDP growth was 0.1%. A figure that would have been negative (-0.3%) if it were not for good rains that boosted our agricultural sector. Bless the rains down in Africa…

Unemployment in the first quarter went back up to 33%. But wait, it gets worse. Youth (15-34) unemployment shot up in Q1 to 46%.

We have a stagnant economy and nearly half of our youth are unemployed.

Let that sink in.

Headline inflation was 5.6% in July but I don’t even feel like getting into it so in short, food in SA appears with RRRR on Google Maps.

There’s pretty much nothing that the SARB can do at the moment with glass fiscal levers ready to break. What we need right now is a huge step up on institutional credibility and private sector mobilisation. You tell me if politics is worse than economics. I can’t decide.

Then why did the USD/ZAR go below R18?

To be honest, it’s all speculative but for me, it’s only that the chaos in the US is worse than the chaos in South Africa. Markets don’t like President Trump’s surprises, even if they aren’t so surprising.

If we track a few other currencies against the ZAR since the beginning of the year, we can guess some of the reasoning through correlation. As a reminder, a positive percentage indicates weakening and visa-versa.

And then, USD against GBP and EUR

USD and ZAR both weakened but USD decided to step up the pace while running backwards, and now the ZAR is trying to catch up. It looks like the ZAR is going to be sprinting for the last half of the year. BUT, for now, we’re still behind/ahead?

Tariffs, oh tariffs

We’re in the crosshairs and President Trump’s magazine seems bottomless. Last week’s Sunday Special Edition was all about tariffs so feel free to take a look back. Since then there’s been no rollback from Washington, rather the opposite with the President’s new wave…

What comes next?

ZAR weakens, we have some form of revolution due to political instability and unemployment, South Africa resets and chaos ensues. Well, that’s holding all things constant and we all know there’s nothing constant about this year. Plus, I’m much more, naively, hopeful than that. What really comes next?

I do believe the ZAR is on a path to weaken for the rest of the year. There’s not much indication domestically that we will have anything substantial to shift that trajectory. Best case scenario, Trump lifts the tariffs on SA and we receive a ton of foreign investment to boost the ZAR and create employment. Likelihood? Near zero.

What should we do?

I’m not going to try solve the dilemmas of our nation in one final section but here are a few thoughts:

1. South Africa needs to be reunited. We’re a nation that works best and punches so far above our weight when we’re together. GNU, EFF, MK, and all the others, please cut the nonsense and put the people first.

2. President Trump loves a deal. Give him one. At the same time, the ones that have fared best are those that manage to build alliances amidst the chaos. Divide and conquer works in the 21st century too and it’s what President Trump wants.

3. Finally, kill the corruption tumour. It runs rampant everywhere regardless of colour. I know it’s much easier said than done but we seem to be at the height of both corruption and publicly exposing it. Let’s push through the latter and hope the chemo is strong enough.

Final word

South Africa is weathering a category 5 hurricane despite our lack of natural disasters. Nevertheless, we will get through it, like we always do. We have everything in our beautiful country and now we just need our leaders to unite us on our way forward.

Stay strong Mzansi.

Rayhaan

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Mzansi Market Memo is compiled daily with a special edition on Sundays by Rayhaan @ the Memo for investors and operators who want to understand more than just the headlines.
This memo is for informational purposes only. Not financial advice. Still, we’d buy low and read high.