Giraffe & Co

What a change two weeks can bring! Two weeks ago, I predicted that the Rand would continue to strengthen against the Euro given the widening inflation rate between Euroland and South Africa. At 10.00am on the 10th of this month, the rate was €1 : R17.60, but as I am writing, the Rand has fallen to R18.03 to the Euro despite this! Also, it is declining despite the market being aware of France and Germany’s PMI’s being below 50 thereby signaling recessions in those countries. And the market has been aware that the European Central Bank will be increasing Euroland rates by 0.75% this week as Germany’s inflation rate hits 10% and the Netherlands inflation rate reaches 14.5%. So, the inflation rate improvement is not sufficient to assist the Rand, nor the pessimistic news from Europe, which begs the question: what exactly is happening to the Rand? Let’s consider the following graph, courtesy of

The cross in the middle represents where we were when I compiled the last MD’s Insights i.e. an exchange rate of €1 : R17.60. A week later, the rate was €1 : R17.65, a drop of 0.284%. This morning saw a rate of €1 : R18.03, a drop of 2.44% since 10 October. But most of this fall has occurred in the last 24 hours, so that would be a good period to examine in respect of events that could influence the rate so materially. It is of course well-known that load-shedding is currently being sustained at Stage 4 and this is clearly hurting the economy and consequently economic growth expectations.

Last night President Ramaphosa addressed the nation in a manner that was not very convincing and again we must assume that he is considering December election matters. The DA Chief Whip, Siviwe Gwarube, considered the address an insult to South Africans!
DA leader Steenhuisen added to the criticism, stating that instead of providing an analysis the president should rather have clarified what is being done to prevent future state capture and how best to promote the enforcement agencies to prevent future state capture.

“More glaringly, the President completely avoided making any announcements about cabinet ministers who have been implicated in State Capture and how he will be holding them to account. This is firmly within his mandate and yet he made a vague mention about looking into this,” he said.
This does not send a good signal to the world regarding resoluteness in the face of such destructive corruption as SA has seen.

Former Presidents Thabo Mbeki, Kgalema Motlanthe and Jacob Zuma had no positive words for Ramaphosa, stating effectively that he had done little to combat corruption etc. Fikele Mbabula sprang to Ramaphosa’s defence but given what is happening at Transnet under his watch, such defence would be viewed negatively by most reasonably informed people. After all, Ramaphosa stated he would not for the moment be initiating a new commission of inquiry into PRASA or the establishment of an independent Public Procurement Anti-Corruption Agency and a Permanent Anti-Corruption Commission! The words and optics are not encouraging.

The Hong Kong stock market dropped in early trading, with Tech stocks forcing the index down, Tencent dropping 8.33% this morning, the share now having lost roughly 50% of its value during the year. This will have a material impact on the JSE that will have knock-on effects on the Rand.
It is clear that these factors are weighing at the core of the sudden drop in the Rand versus the Euro, and these were the danger signs communicated previously in previous issues of Insights. But the fundamentals still support a stronger Rand and The Big Mac Index will be showing the extent of the undervaluation of the Rand when next it is published by The Economist!

I remain optimistic that the Rand will find its feet again soon.
So to our partners, the Rand will improve once the negative news stops proliferating so that the fundamentals can reflect ‘true’ economic values.

In other news, the new Unify OpenScape Desk Phone CP are rolling out and these new devices, manufactured in partnership with Gigaset, are exciting new addition to the Unify portfolio. We currently have stock of the CP110 and the CP210, both these new models are replacing the CP100, CP200 & CP205. We are awaiting a release date for the new CP410 which is based on its successor the CP400, so keep your eyes peeled for this announcement.

Peter GeesChartered Accountant (SA)Advocate of the High Court of South Africa

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