While money managers say emerging markets are well positioned to weather an economic slowdown, high-yielding currencies tend to buckle as capital flows head for havens like the US dollar.
The rand weakened past 17 per dollar on Monday as the SA currency’s resilience is tested by fears of a US recession even as local fundamentals remain supportive.
“Even more concerned by recession fears could be the crowded positions in popular non-oil commodity names like SA,” Bank of America strategists led by David Hauner wrote in a note to clients. “They won’t escape tightening financial conditions, recession fears and de-risking, even if the long-term fundamental picture is likely to remain supportive.”
While a global recession could weigh on oil prices, which would benefit energy importers such as SA from a balance-of-payments point of view, that’s only half the story, according to Nedbank . Not all the bulls have given up. The sell-off could abate if China’s economy recovers strongly and the South African Reserve Bank follows through on its promises of aggressive policy tightening, according to Societe Generale .
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