Bonds News

UPDATE 1-South Africa's rand surges as dollar slumps

(Updates to reflect afternoon trade)

JOHANNESBURG, Aug 28 (Reuters) - South Africa’s rand surged against the dollar on Friday, as the U.S. currency fell heavily and global investors hunted for higher-yielding assets in emerging markets.

At 1500 GMT, the rand traded at 16.6350 per dollar, roughly 2.5% firmer than its close on Thursday.

Data this week pointed to a modest pickup in price pressures in Africa’s most industrialised economy, adding to signs the central bank may bring a recent series of rate cuts to a close.

“The end of the rate-cutting cycle is also giving a boost to the rand, with the search for yield seeing carry traders dip their toes back into the local market,” fund manager Anchor Capital said in a research note this week.

The rand’s gains came despite data showing an $8 billion budget deficit in July, and research from a science council showing 2020 had seen the worst power cuts on record.

The stretched state of public finances and electricity constraints are among the top concerns for investors.

South Africa’s economy was already in recession before the COVID-19 pandemic, and official forecasts are now for a GDP contraction of at least 7% this year.

Johannesburg-listed stocks fell on Friday, with the Top-40 index losing 1.58% to 51,750 points and the All-Share index falling 1.43% to 56,057 points.

Insurer Discovery was among the biggest losers, shedding more than 4% after saying the coronavirus crisis could erase its full-year profits entirely.

Greg Davies, trader at Cratos Capital, said Discovery’s decline reflected wider sentiment in the market.

“I think with a lot of banks’ results coming out over the past week people are starting to realise the economy is in deeper trouble than we first realised,” he said.

Also dragging the index down were lender Nedbank, retailer Woolworths and Naspers, which all lost 3% or more.

The yield on the 2030 government bond rose 2.5 basis points to 9.325%, reflecting weaker bond prices. (Reporting by Alexander Winning and Emma Rumney; Editing by Mark Potter)