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SA back in vogue but rate cut on hold
MARKETS
SA MARKETS are back in vogue for many local and foreign investors following a week of strong buying on the back of the rand's strength. Analysts say the relative stability of the currency in recent weeks has led to renewed interest from foreign investors in South Africa's enticingly cheap bond and share markets, but they warn that the global turmoil is by no means over. They say a lack of reform in the beleaguered Japanese economy, continued concern over Latin America, a still jittery Wall Street and the general negative sentiment towards emerging markets weigh against SA markets. This caution is also likely to sway thinking at the SA Reserve Bank, which has steered interest rates sharply higher in recent months in an attempt to fight off speculative activity against the currency. Analysts say Reserve Bank governor Chris Stals is unlikely to take a policy decision in the coming days to ease interest rates, even if the rand manages to hold steady or strengthen further. "The fact that money market interest rates and the market shortage have eased and the rand is better off suggests that we have seen the worst," says Julia Roy, economist at Rand Merchant Bank. "But they would have to see more than a week of stability before they cut rates. Policymakers do not want to be caught too soon and find themselves caught in another round of turmoil." Analysts say the rand has gained on a variety of factors, including unwinding of short positions by speculators and renewed bond and equity market interest. Roy says another factor likely to have boosted the currency is the repatriation of export proceeds. Following an extension of the length of time exporters could keep their currency offshore to six months from 30 days in the March budget, those exporters who took immediate advantage of the concession are only now having to bring money back into the country, thus boosting rand buying, she says. Merrill Lynch says in a report, dated September 10 but released on Friday, that it expects rand stability for the next 18 months but adds that interest rates could stay high for months. Merrill says it is bullish on SA bonds on a 12-month view, and feels that the worst is likely to be over for equities too. The rand was 5.8350 to the dollar late on Friday, while the JSE's all-share index managed a 1.4% gain despite weaker world markets, lifted largely by surging gold shares after a gold price rally to 12-week highs. Top of page
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