Loadshedding fears cause South African rand to hit 3-year low

Loadshedding fears cause South African rand to hit 3-year low. The South African rand has hit a three-year low, falling further on Wednesday after a sharp drop the day before. This has resulted in both domestic and international government bonds dropping as concerns grow over scheduled blackouts known as loadshedding worsening during winter. As of 1530 GMT, the rand was trading at 18.8750 against the U.S. dollar, its weakest level since early May 2020 as reported by Reuters. The rand had already fallen about 1.7% the day before.

Longer-dated maturities of South Africa’s sovereign dollar bonds fell the most. The 2052 maturity dropped 0.77 cents in the dollar to 82.8 cents as of 1505 GMT, having fallen more than 1 cent earlier in the day. At one point, the yield rose above 9%, which is its highest level in almost six months.

According to local media, Eskom, South Africa’s struggling state utility, informed parliament on Tuesday that there would be a 45-day delay in returning a generating unit online. This delay is likely to add further pressure on the grid during winter when loadshedding, which is the process of temporarily switching off the electricity supply to a certain area, is already more than 10 hours a day across most parts of the country.

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On Wednesday morning, Kieran Siney of ETM Analytics noted in emailed comments that “SA bonds and the ZAR (rand) are underperforming their EM counterparts.” He explained, “Until there is a concrete plan to resolve SA’s energy crisis that the market buys into, the underperformance will persist, notwithstanding the attractive yields on offer and deep undervaluation in the ZAR.”

The government’s local bonds also dropped, with yields on the benchmark 2030 bond rising 23 basis points to 10.560%, which is the highest level since December. ETM Analytics highlighted in a separate note on Wednesday morning that misleading headlines on Tuesday had sparked the market rout by giving “the impression that was losing control of the grid”. The note went on to say, “SA is in trouble, the grid is under pressure, Eskom does face multiple threats, but none of this is anything new.”

The stock market was also impacted, with the blue-chip index of top 40 companies ending down 0.17%, while the broader all-share index remained flat. Overall, South Africa’s energy crisis remains a major concern for investors. Until a concrete plan is put in place, the underperformance of the rand and government bonds will likely continue.

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Photo: Facebook / @SA Reserve Bank