Rand takes the market by surprise
October 25, 2007
The rand took the market by surprise yesterday, soaring to an intraday high of R6.63 to the US dollar - the highest level since May last year - before settling at R6.65 to the dollar in late afternoon trade. The currency also strengthened sharply against the euro and sterling.
Ian Cruickshanks, head of Nedbank Capital's strategic research unit, said the sudden move could relate to corporate action by a foreign acquirer targeting Standard Bank, as there had been "huge offshore dollar sales in exchange for rands".
Standard, the country's biggest bank in terms of assets, said yesterday it would hold a press conference at 2pm local time today to give details of negotiations that could affect its share price. This followed a cautionary issued on Monday. The two announcements sent its share price from a close of R105.49 on Monday to R110.99 at yesterday's close - a 5 percent leap.
The acquisition two years ago of a controlling stake in Absa by UK bank Barclays has been followed by speculation about further offshore purchases. Recently speculation has centred on attempts by Standard Chartered (Stanchart) to buy into a South African bank.
Nedbank has been named as a potential target but its parent Old Mutual is reluctant to sell.
Stanchart returned to South Africa in 2004 when it bought 20Twenty, Saambou's online bank, then in curatorship. It closed the venture last year.
Stanchart, originally Standard Bank's parent, disinvested from South Africa in 1987 at a time of credit sanctions against South Africa.
However, a source at another bank dismissed the talk of Standard being a target, saying instead that his money "was on Standard acquiring a stake in a large emerging market bank". But he said there had been cases of equity exchanges between financial institutions in such deals and these could involve currency transactions.
Whether or not the market is making the right guess, the speculation could have been a factor in driving the rand up.
Cruickshanks said covering of short rand positions could also have contributed to the rise. "When the rand was R6.80 to the dollar in July, investors may have decided the only way it could go from there was down and taken short positions."
Investors take short positions when they sell currency or assets they do not yet own, for delivery in the future. They expect to buy in at a cheaper price, making a profit on the transaction.
However, after hitting a trough of R7.40 on August 16, the rand has recovered steadily. "People with short positions may have hung in waiting for the weakness to resume. Now they may have decided its time to take cover."
He suggested the shift in perceptions came last week, when the rand strengthened to R6.90 and "a big international bank forecast it would strengthen to R6.30".
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