/ 24 June 2016

Brexit spells bad news for SA: Rand falls most against the dollar since 2008 as UK votes to leave EU

Dawn breaks behind the Houses of Parliament and the statue of Winston Churchill in Westminster
The government on Thursday is publishing the first 25 in a series of around 80 technical notices advising businesses and citizens what they need to do to prepare for a no-deal scenario. (Reuters)

South Africa’s rand lived up to its reputation as a proxy for risk sentiment, plunging by the most since 2008 against the dollar and falling to a record against the yen as investors piled into haven assets after the UK voted to leave the European Union.

The currency slumped the most in emerging markets, losing as much as 8% against the greenback before trading 7.2% weaker at 15.5409 by 8 am in Johannesburg, the weakest level on a closing basis since June 1, according to Bloomberg generic pricing. The rand plunged 11.5% to 6.5487 yen and fell 4.5% to 17.1493 per euro.

South Africa’s currency is the most volatile among 24 emerging-market peers, according to data compiled by Bloomberg, suggesting it often trades as a proxy for risk sentiment. A British exit from the EU could shave about 0.1 percentage point off South Africa’s economic growth, according to researchers from North-West University. The UK is the fourth-biggest destination of South African exports, according to data compiled by Bloomberg.

“The rand will be affected in the short-term with a general knee-jerk risk-off perception,” Philip Saunders, co-head of multi-asset management at Investec Asset Management Ltd, which oversees $116 billion, said by phone from London on Friday. “The initial reaction is probably going to be one whereby you see markets becoming somewhat disorderly and South Africa is going to be caught up in that backwash.”

South African bonds fell the most since December, with yields on benchmark rand bonds due December 2026 climbing 34 basis points to 9.23%, the highest on a closing basis since June 2.

The pound plunged by a record and the euro slid by the most since it was introduced in 1999 as the BBC projected a victory for the “Leave” campaign with most votes counted in Britain’s referendum on membership of the European Union. Oil sank to about $47 a barrel and industrial metals slumped, while the yen surged and gold soared with U.S. Treasuries. Futures on the FTSE 100 Index plunged with S&P 500 Index contracts as Asian stocks dropped by the most in five years.

The rand has slumped 21% in the past year, the worst performance after Argentina’s peso among 24 emerging-market currencies tracked by Bloomberg, amid concerns that political upheaval and deteriorating fiscal metrics could lead to a credit downgrade to junk.

The South African currency strengthened 0.8% to 21.2740 against the pound. – Bloomberg