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Rand Rises as Economic Recovery Spurs Demand for High Yield Assets


South Africa’s rand rose for a third day after Alan Greenspan, former U.S Federal Reserve Chairman said the global recession is slowing, which is boosting demand for riskier, high-yield assets.

“The rand advanced for a third day, adding as much as 0.6 percent to 7.7126 per dollar before trading 0.3 percent stronger at 7.7348 by 4:47 p.m. in Johannesburg, from 7.7610 on July 31.”

Beat Siegenthaler, chief emerging-markets strategist at TD Securities in London assures that ““Bullish sentiment about a likely recovery in the global economy remains robust and that’s very positive for riskier assets like the rand… The continued improvement in risk appetite is making investors a lot more comfortable with gaining exposure to high-yield assets."


South Africa’s rand gained after former Federal Reserve Chairman Alan Greenspan said the global recession is easing and reports showed manufacturing in China and India increased, boosting demand for high-yield assets.

 

The rand advanced for a third day, adding as much as 0.6 percent to 7.7126 per dollar before trading 0.3 percent stronger at 7.7348 by 4:47 p.m. in Johannesburg, from 7.7610 on July 31. Earlier the rand slipped as much as 0.6 percent to 7.8073.

 

“Bullish sentiment about a likely recovery in the global economy remains robust and that’s very positive for riskier assets like the rand,” said Beat Siegenthaler Beat chief emerging- markets strategist at TD Securities in London. “The continued improvement in risk appetite is making investors a lot more comfortable with gaining exposure to high-yield assets.”

 

Greenspan said in an interview yesterday on ABC’s “This Week” program that U.S. economic growth may resume at a rate faster than most economists forecast. The CLSA China Purchasing Managers’ Index rose to its highest level in a year, after record lending and a 4 trillion yuan ($585 billion) stimulus package drove a recovery in the world’s fastest-growing major economy. India’s factory output gained for a fourth month, according to Markit Economics’ Purchasing Managers’ Index.

 

South Africa’s currency pared earlier gains after a report showed the country’s purchasing managers’ index purchasing managers’ fell for the first time in three months in July, extending a recession in the manufacturing sector. Against the euro the rand slipped 0.5 percent to 11.1414, from 11.0858 at the end of last week.

 

MTN Merger

The currency drifted between gains and losses earlier today after Johannesburg-based MTN Group Ltd. extended merger talks with India’s largest mobile operator, raising concern a new deal structure may result in smaller inflows into Africa’s biggest economy. The deadline for talks between the two companies was extended by a month from July 31.

 

“The postponement of a possible merger raises some concern that the initial structure of the deal could be changed,” said Brigid Taylor, a senior currency trader at Rand Merchant Bank in Johannesburg. “There’s quite a bit of uncertainty about whether a new structure could result in smaller amounts of money flowing into South Africa, which would have an impact on the rand as the currency has been pricing in aggressive dollar inflows.”

 

Original discussions involved plans for MTN to sell a 49 percent stake to New Delhi-based Bharti Airtel Ltd., in turn acquiring a 36 percent holding in the Indian company. The deal may have resulted in net inflows into South Africa of as much as 60 billion rand ($7.74 billion), Macquarie First-South Securities said in a July 23 research note. The rand rallied to an 11-month high of 7.6131 on the same day on speculation the merger would create a combined wireless operator with 200 million subscribers from the Himalayas to the Cape of Good Hope.


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