Big drop in the rand coming soon
South Africa’s rand is most vulnerable to the rise in U.S. Treasury rates among its emerging-market peers, according to Morgan Stanley, which predicts further weakness for the battered currency as the country’s finances deteriorate.
The rand may decline about 6 percent to 15.50 per dollar in the run-up to the medium-term budget statement on Oct. 24, Morgan Stanley strategists including Min Dai wrote in a report. Investors will watch the budget update for signs of fiscal slippage as sluggish economic growth curbs tax revenue.
“We remain convinced that South Africa will underperform into the medium-term budget update,” the strategists said. With foreign investors holding about 40 percent of the government’s rand-denominated bonds, “we believe that South Africa is the most vulnerable country in the current environment,” they wrote.
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