Dear, oh dear, with the exception of the share market that regularly hits new highs, the rest of the news is bad. To make matters worse, next week the petrol price will do another leap. But as the rand has lost 7% against the dollar since the start of the New Year and the oil price risen by 2,7%, higher prices at the pumps was a foregone conclusion.
South Africa is classed amongst the emerging economies where, because their financial structures have not been around for centuries, are not expected to be as stable of those of the first world. Not, that is, that the big boys can claim much stability in the past five years, but currently ours is the only emerging market currency that is losing fast against major currencies. I don’t have to list all of the reasons why, just the first one, labour unrest.
It is Sod’s Law that just as a glimmer of light signalling the end of the world economic woes is ignited, we suffer widespread and often violent strikes. If only mines and farms were in full production with the rand’s weakness, exporters would be shipping boatloads to counties that have let stocks run low.
The Commodity Research Bureau spot index which measures all commodity prices worldwide has risen 2,43% since a November low and so signalling better things may be ahead. Most metal prices, including platinum have been rising, and likely to continue. But we can’t take full advantage of the situation when our labour force is either staying at home or rioting.
At time like this when the value of our currency is on the slide, I’d recommend rand-hedging; that is investing in shares of companies whose earnings are in foreign currencies. Traditionally top of the list come mining companies, but even before the strikes, mining shares were soured by nationalisation threats. Other good rand hedges are typically food producers that export a goodly portion of their output. Then there are the shipping companies that transport the goods, but with fewer metals, minerals and agricultural products to ship, outgoing cargoes may be limited. There are companies like Richemont selling oodles of luxury goods to far eastern tourists, and industrial companies exporting finished goods. However, the one I am most happy to stay with is Sasol, which operates abroad and earns in a range of currencies. Added to this when the oil price is high, it doubles its rand-hedge value.
The chart shows how the plotting of Sasol (bar) follows the price of Brent Crude (blue line). Also following the two is a moving average convergence/divergence (MACD) plottings in red and green. When the oil price goes up or down, so does the price of Sasol while the cross-over of the two MACD plottings tell you when to buy and sell.