The rand
  • Goldman Sachs has singled out the rand - along with the Mexican and Russian currencies - as its favourite picks to post gains after "the dust settles" on the pandemic.
  • The investments bank believes the rand could rally, and recently upgrade its forecast for the year-end to R15.75/$.
  • According to the Economist's Big Mac index, the rand is the world's most undervalued major currency.
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“Once the dust settles” over the coronavirus pandemic, the rand could be set for strong gains, believes the investment bank Goldman Sachs.

After the Mexican peso, the rand is its top emerging market currency pick.

CNBC reports that Goldman told clients in a note that it may still be too early to take a bet on emerging market currencies, given the Covid-19 risks and a still-strong dollar. But the bank’s strategists say that it may not be too early to starting thinking about opportunities following the pandemic.

The Mexican peso was singled out as the most attractive among the emerging market currencies, followed closely by the rand and the Russian ruble.

The Goldman Sachs strategists believe the rand is “deeply undervalued”. 

“Given significant domestic risks, however, including South Africa’s October mid-term budget announcement for the rand, and a combination of still-volatile political headwinds and slowly-fading macroeconomic tailwinds for the ruble, the key question for each currency is whether high global betas can (eventually) trump domestic headwinds,” they said. Beta refers to how the currency will react to market rallies.

However, the bank is optimistic that the rand could overcome problems, especially since it is sensitive to Chinese data, which is recovering.

It recently upgraded its forecast for the rand to hit R15.75/$ by year-end, from an expectation of R16.50 previously. From around R14/$ at the start of the year, the rand has weakened to R19 in April. It is currently trading around R17.20 – from R16.10 a week ago.

According to The Economist’s Big Mac Index, the rand is the most undervalued currency in the world – it’s now a whopping 67% cheaper than it theoretically should be against the dollar.

While the vast majority of currencies are also undervalued to the dollar – Brazil by 32%, Argentina (-39%), India (-56%) and Turkey (-64%) – none beat the rand. The rand was even weaker than the Russian ruble (-66.5%).

Dollar/rand exchange rate. Source: XE

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