巴黎银行-南非-宏观经济-南非：利率滞后-20171218-8页_563kb

South Africa: Interest Rates Lag Behind Summary

Core Content

This document provides an analysis of the South African Rand (ZAR) performance and the implications for interest rate policy and FX trading strategies. It is authored by Piotr Chwiejczak, an FX & IR CEEMEA Strategist at BNP Paribas London Branch. The key focus is on the recent strong performance of the ZAR and the potential impact of the ANC party conference on its value.

Main Argument

The ZAR has returned 8% over the past month, erasing previous losses and becoming the best-performing currency among liquid emerging market FX. This performance is attributed to the high FX premium in South Africa, which has led to exceptional returns. The author argues that interest rates are too high, and that this has resulted in a strong ZAR, potentially making further rate hikes unnecessary.

Key Points

• ZAR Performance:

  • The ZAR has returned 8% in one month, with a three-month return now flat.
  • This performance has squared the losses from the Q3 2017 correction.
  • The ZAR briefly turned negative in early December (-1.5%), but quickly reversed, indicating a positive feedback loop.

• Political Impact on FX:

  • The author suggests that the ZAR is unlikely to plunge even if the ANC conference outcome is market-unfriendly.
  • The cushion from recent FX performance (8%) is greater than the projected movement from the conference (around 3.5% daily), reducing the risk of forced selling.
  • In the case of a market-friendly outcome, the ZAR is expected to appreciate further, with USDZAR falling toward 13.00.

• Trading Strategy:

  • The recommendation is to receive ZAR 1y1y forward at 7.70, targeting 7.20 with a stop loss at 7.90.
  • A long USDZAR position was previously stopped out at 13.45, initiated at 13.74.

• Rate Hikes Unnecessary:

  • High interest rates have led to excess hard currency inflows, which are not aligned with South Africa’s funding needs.
  • This has contributed to the ZAR's strong performance.
  • The author believes that rate hikes are not needed at this time.

Key Information from Charts

• Chart 1: Shows a 1-month realised return of 8% in ZAR.
• Chart 2: Indicates that ZAR FX is the best performer, suggesting that interest rates are too high.

FX Performance Comparison

Legal and Regulatory Notice

• This document is non-independent research and is considered a marketing communication under MiFID.
• It is intended for Professional Clients and Eligible Counterparties and may not be suitable for all investors.
• BNP Paribas may have conflicts of interest and may engage in transactions inconsistent with the views expressed.
• No investment, financial, legal, or tax advice is provided.
• Past performance is not indicative of future results.

Additional Disclosures

• The document includes important disclosures regarding options, ETFs, and convertible securities.
• Certain securities may be unregistered under US Securities Laws and are only available to Qualified Institutional Buyers or non-US persons under Regulation S.
• The document is subject to regulatory supervision in various jurisdictions, including the ECB, ACPR, BaFin, FSMA, CONSOB, AFM, and FINMA.

Conclusion

The analysis suggests that the ZAR has performed exceptionally well due to high FX premiums and strong inflows from high interest rates. The author believes that rate hikes are unnecessary and that the ZAR is unlikely to experience a sharp decline even in the face of political uncertainty. The trading strategy involves a short USDZAR position with a target of 7.20 and a stop loss at 7.90. The document also includes detailed legal and regulatory disclaimers, highlighting the importance of independent evaluation and professional advice before making any investment decisions.