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The rand is running at R16.48/USD, having reached R16.58/USD last week, as the oil price climbed towards US$90/bbl on the closure of the Strait of Hormuz again with Iran vowing “not a single drop” of oil or gas will pass through the Strait.
The US has expanded its attacks against Iran, moving in on energy plants while Iran strikes US military assets in neighbouring Middle Eastern countries, while peace talks are reportedly ongoing, despite breaking the cease-fire.
The resumption of the Middle East war has seen a mild negative impact on global financial market risk appetite, which is “subdued but still in positive territory” in July, according to the S&P Global Investment Manager Index (IMI).
The survey notes “stress amid the developing situation in the Middle East persists. Sector preferences have pivoted accordingly. The US market is also preferred over other regions, especially European markets.”
“The IMI’s Risk Appetite Index… a monthly survey of nearly 300 institutional investors managing funds in excess of $3,500bn, …. at +8%” shows “risk appetite is still running well below the optimism seen prior to the outbreak of the war”.
“July saw … reduced near-term fears over higher interest rates” and perceptions on the US macro environment improved but “views relating to shareholder returns have become the least positive in nearly a year” and markets worry over “high valuations”.
However, the survey began before the escalation in conflict in the Middle East and only part of the survey ran through the break in the ceasefire. As a result, the results are likely to be slightly more positive than the second half of July would reflect.
The rand has been relatively stable in light of the return to war in the Middle East, and improving fundamentals domestically, particularly for government finances, and reflected in credit rating improvements, supporting the domestic currency.
Foreign investor sentiment is positive towards SA, with net purchases of SA government bonds in July to date, double that of June’s net purchases, as the GNU makes inroads into tackling structural problems, including municipal finances.
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About the author
Annabel Bishop, Chief Economist, Investec Bank Limited South Africa
Annabel Bishop joined Investec in 2001 and is the Chief Economist. She has worked in the macroeconomic, econometric, risk, financial markets, political risk, public finance and regulatory, among other, fields for around 25 years. Annabel is the holder of the Sake/Beeld Economist of the Year award for 2010 and has won numerous monthly Reuters Econometer awards, and various Focus Economics (Economic Forecasts from the World’s Leading Economists) categories for correctly forecasting a range of economic variables. She has authored a wide range of in-house and external articles, published both abroad and in South Africa. She has also guest lectured at Gibbs, the University of Pretoria, Wits, UJ and other academic institutions, and has presented at various national and international conferences. Author of the “Financial Services sector and its support to the economy“ section in the Better Choices Ensuring SA’s Future.
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