What a year.
Did we really need another one?
Where does one even start to encapsulate a year like this soon-to-end one of 2016?
It was a year of surprises. Of shocks. Of worry. Of relief. Of despair.
And everything in-between....
Recapping a year like this past one is a difficult task. But here are some defining moments:
- January The rand has a flash crash to worst levels ever, which drives the markets back into full panic mode. Ongoing rumblings from Nenegate still abound. Despite this, the rand strengthens to below 16 by month-end.
- February Poor global growth and an underwhelming State of the Nation speech can’t keep the rand from strengthening to almost 15, but despite a fair Budget speech by an under-pressure Gordhan, the rand loses all gains made during the month plus some, but then inexplicably strengthens when news breaks that the Hawks are planning to charge Gordhan.
- March The rand strengthens but then weakens with Moody’s putting markets on the alert for a possible downgrade. Deputy Finance Minister drops a Gupta bombshell. Despite this, the rand strengthens. A pessimistic update by US Fed Chair sends rand to below 15. The Constitutional Court rules against Zuma in the Nkandlagate saga.
- April Zuma impeachment motion gets crushed with ongoing Zuptagate rumblings and revelations yet rand ends at its strongest levels in five months.
- May Moody’s maintains South Africa’s credit rating. Despite this, the rand weakens Reports of the imminent arrest of Pravin Gordhan sees the rand crash 2%.
- June S&P and Fitch keep SA’s investment credit rating unchanged avoiding #JunkStatus. Britain leaves the EU to shock the markets and the world with an upset of mass proportions #Brexit, sending rand to 15.67 but then recovers into month-end.
- July Rand moves below 15 as markets move on from Brexit. Failed military coup in Turkey sends a touch of panic through the markets.
- August The rand strengthens initially after opposition parties make strong showing in local elections. But then Hawks summons Gordhan. The rand dive-bombs 4%. #FeesMustFall campaign revives and gathers momentum.
- September The rand strengthens on the back of good GDP figures. #FeesMustFall protests get nasty with violence and destruction.
- October Gordhan is now summonsed by the NPA to appear in court - the rand loses a further 4%. Gordhan implicates Guptas in court papers. On 31st the NPA announces that Gordhan is off the hook, and the rand breathes a sigh of relief.
- November State Capture report is released, implicating Zuma, the Guptas and several others. The rand hits its best levels in over a year. Trump wins US Elections in Brexit-type style, shocking markets. The Rand weakens dramatically. As month-end draws near, the country breathes a sigh of relief and Fitch and Moody’s keep SA from feared #JunkStatus, pushing the rand back below 14.00. Zuma faces his biggest challenge as the NEC deals with a motion to request his stepping down.
- December We still have some ground to cover in the last month of the year, but already the rand has escaped S&P’s #JunkStatus rating, and strengthened off it. #StateCapture rages on - more parties implicated. Unstable rand expected for the remainder of the year
A volatile year indeed.
Whether you look at it from an economic, political or social perspective
And the rand’s resultant gyrations have been a nightmare for every business, with all the uncertainty that such volatility and incompetent politicians bring. The insecurity has meant that businesses are looking to stay as far away from forex as possible, whereas it was an opportunity to make profit in the past.
Perhaps something that will show just what a roller-coaster of a year it has been is to take a look at the rand’s volatility.
In 2015, the rand moved 18.1 cents on average, or 1.4% per day. This was the most the rand had moved in percentage terms since 2011.
By comparison, in 2016 the rand has moved 30.3c per day on average. This is the worst ever in linear price terms. And in percentage terms, at just over 2% per day, it ranks as the fourth most volatile year after 2008, 2009 and 2003.
So a hectic year by any standards - and definitely a year that won’t be forgotten in a hurry.
And if you knew all this was going to happen in January this year (after such a tumultuous 2015 and the rand at over 16 to the Dollar), where would your bets been on where the Rand would end up for the year - weaker or stronger?
My bet is that like any economist, you would have bet weaker - a lot weaker.
But that did not happen.
This is because financial markets do not move as conventional wisdom would dictate.
In fact, if you look at the above events, many times the rand moved in the exact opposite direction to what you would have expected.
This is because the markets are moved by the combined actions of people who make emotionally charged decisions. These emotions swing from one extreme of hope and greed to the other of fear and despair, and drive the market to trends and countertrends, in larger and smaller degrees.
So where does that leave us for the outlook for 2017?
With the above lesson, there are three things you can be certain of:
- The rand will not move as is generally anticipated.
- The stronger the general consensus that the rand is expected to move in one direction,,the more likely it is to move in the opposite direction.
- If you let your decisions dictate your business or personal foreign exchange decisions, you will likely make the wrong decision
Based on our analysis of the current sentiment patterns, we believe there is more rand strength ahead as we head into the new year.
But, of course, it will never be a one-way street.
