Rand weakness: The drivers and potential outcomes John Cairns, RMB - - PowerPoint PPT Presentation

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Rand weakness: The drivers and potential outcomes John Cairns, RMB - - PowerPoint PPT Presentation

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Rand weakness: The drivers and potential outcomes John Cairns, RMB Currency Strategist May 2013, conference call An Authorised Financial Services Provider Strictly Private and Confidential Rand underperformance USD/ZAR and other high-yielding

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Strictly Private and Confidential

An Authorised Financial Services Provider

Rand weakness: The drivers and potential outcomes

John Cairns, RMB Currency Strategist

May 2013, conference call

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Strictly Private and Confidential

Rand underperformance

USD/ZAR and other high-yielding currencies Currency changes in the past three years

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90 100 110 120 130 140 2010 2011 2012 2013

ZAR High-yielding currencies

Index (Jan-08 = 100) weakness strength

Source: RMB Global Markets, I-Net Bridge, Bloomberg, Reuters

  • 20%
  • 10%

0% 10% 20% 30% 40% 50% 2013 2012 2011 T

  • tal
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Strictly Private and Confidential

It’s only the rand that is struggling

SA CDS spreads JSE All Share index

3 Source: RMB Global Markets, I-Net Bridge, Bloomberg, Reuters

100 200 300 400 500 600 2002 2004 2006 2008 2010 2012 10,000 20,000 30,000 40,000 50,000 2000 2002 2004 2006 2008 2010 2012

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Strictly Private and Confidential

Two structural negatives

Commodity export price index The current account deficit

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  • 10.0
  • 7.5
  • 5.0
  • 2.5

0.0 2.5 2000 2005 2010 % of GDP

Source: RMB Global Markets, I-Net Bridge, Bloomberg, Reuters

50 100 150 200 250 300 1990 1995 2000 2005 2010

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Strictly Private and Confidential

How weak is the rand really?

NEER: Deviations from fair value USD/ZAR and fair value

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  • 30
  • 20
  • 10

10 20 1990 1995 2000 2005 2010 % Undervalued Overvalued 4.00 6.00 8.00 10.00 12.00 14.00 2000 2002 2004 2006 2008 2010 2012 Actual Fair value

Source: RMB Global Markets, I-Net Bridge, Bloomberg, Reuters

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Strictly Private and Confidential

How the flows stack up

Foreign holdings of local bonds Net visible flows

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75 150 225 300 375 2000 2002 2004 2006 2008 2010 2012 Rbn 5.0 6.0 7.0 8.0 9.0 10.0 11.0

  • 45.0
  • 30.0
  • 15.0

0.0 15.0 30.0 2006 2008 2010 2012

Visible flows (trade + portfolio) USD/ZAR (RHS reversed)

Rbn

Source: RMB Global Markets, I-Net Bridge, Bloomberg, Reuters

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Strictly Private and Confidential

Rand scenarios

Our official forecast USD/ZAR and probability bands

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4.50 6.00 7.50 9.00 10.50 12.00 2005 2007 2009 2011 2013 2015 Actual Forecast Forward 0.00 3.00 6.00 9.00 12.00 15.00 2000 2002 2004 2006 2008 2010 2012 2014 Actual 95% confidence band 66% confidence band

Source: RMB Global Markets, I-Net Bridge, Reuters

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Strictly Private and Confidential

Risk distribution around the core view

8 Source: RMB Global Markets

3.3% 2.3% 0.5%

  • 1.1%

Mild capital slowdown Capital standstill Core view

Growth 4.5% 6.5% 8.0% 9.5% Repo (eop) 2014 forecasts USD/ZAR 13.00 10.00 9.00

The probability distribution and implications

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Strictly Private and Confidential

Strictly Private & Confidential This presentation has been prepared by FirstRand Bank Limited, acting through Rand Merchant Bank (“RMB”). The information contained in this presentation is confidential and intended solely for the use of the intended recipient. This presentation may contain information proprietary to RMB and accordingly may not be reproduced, acted upon or disseminated in whole or in part without RMB’s prior written

  • consent. By attending this presentation, the intended recipient undertakes to keep the information contained in the presentation confidential and not to do

any act or allow same to be done on his behalf which is in breach of the above mentioned prohibition. This presentation contains information which has not been independently verified by RMB. RMB and its directors, officers, employees and agents make no representation and give no warranty with respect to, and assume no responsibility for: the correctness, accuracy and completeness or otherwise of the information contained in this presentation; or the correctness or otherwise of the Advisers’ conclusions based on such information. Any liability of whatsoever nature and howsoever arising on the part of RMB, their directors, officers, employees and agents relating to the contents of this presentation is hereby expressly disclaimed. This presentation is intended for discussion purposes only and does not represent a commitment, proposal, recommendation, offer open for acceptance or agreement to enter into a transaction. Any transaction is subject to the agreement of final terms to be set out in a separate written agreement. The decision to enter into any transaction and to assume the risks associated with the transaction rests solely with the intended recipient.

July 2012

Disclaimer

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