Local market still under pressure
The rand stays under pressure after hefty losses caused by an apparent power struggle between the South African presidency and treasury.
|||London - Emerging markets enjoyed some respite on Thursday in line with a pause in the dollar, though the rand stayed under pressure after hefty losses caused by an apparent power struggle between the South African presidency and treasury.
Emerging stocks have eased off one-year highs hit in mid-August as robust US data and hawkish comments from Federal Reserve officials have boosted the dollar by reviving expectations of interest rate rises this year. Markets are now on tenterhooks before Fed chief Janet Yellen's speech on Friday.
MSCI's emerging equity index rose 0.3 percent off two-week lows and most currencies firmed marginally against the greenback. Chinese mainland stocks were the outlier, falling 0.6 percent as property shares slumped.
Most of the attention was on South Africa, however.
The rand inched off three-week lows touched on Wednesday and bond yields eased from two-week highs.
But the stabilisation looks fragile as Finance Minister Pravin Gordhan refused to appear before police who had summoned him over an investigation into a suspected rogue spy unit in the tax service.
Gordhan's efforts at the treasury are seen as key to preserving South Africa's investment grade credit rating and many suspect he is the target of pressure from a faction allied to President Jacob Zuma. His refusal to meet the police could set the stage for a prolonged tussle and rock markets further.
“The rand will be quite vulnerable going forward,” said Per Hammarlund, chief EM strategist at SEB in Stockholm.
“There is definitely a political power struggle between the Zuma faction and the finance ministry. If the markets don't react too much to Zuma's pressure on Gordhan, he will continue to press quite hard.”
Heavy rand positioning has increased the currency's vulnerability - prior to this week, its year-to-date gain against the dollar totalled almost 15 percent. JPMorgan said its latest client survey showed positioning in South African bonds was at the highest since early 2015.
“We think there is scope for the rand to weaken further in the short-term - 2-4 percent,” JPM told clients.
The mood was sombre also in the Gulf as oil's decline saw stocks extending Wednesday's falls. Saudi Arabian shares fell more than 1 percent to new six-month lows while Dubai and Qatar tumbled 0.6 and 0.8 percent respectively .
Russian stocks too fell half a percent though the rouble managed to recover slightly.
Turkish markets too stabilised after falling heavily on Wednesday when the country sent tanks over the border into Syria to counter Islamic State militants. Turkish stocks bounced 0.9 percent while the lira firmed 0.3 percent.
However, Polish stocks stayed under pressure. Poland's biggest insurer PZU, believed to be keen on acquiring Unicredit's stake in lender PKO, lost more ground , holding near record lows.
In bond news, Poland is poised to become only the second sovereign to print an onshore yuan-denominated “panda” bond, having guided Chinese investors towards a 3.2-3.7 percent yield.
REUTERS