The Rand, introduced on February 14, 1961, replaced the South African pound as South Africa transitioned from a commonwealth member to a republic. Named after the Witwatersrand, the region where Johannesburg was built and where most of South Africa’s gold deposits were discovered, the Rand held significant importance during that era. Gold was a cornerstone of the global monetary system, and South Africa’s robust gold exports contributed to the currency’s strength.
However, the Bretton Woods system, which had been the foundation of the international monetary system, was dismantled in 1971. This shift led to the introduction of the Fiat system, where currencies float against each other without the need for gold reserves. At the time of the Rand’s launch, it traded at approximately R0.72 per US dollar.
In the 1980s, South Africa faced political instability, sanctions imposed by developed nations, and disinvestment due to Apartheid. These factors negatively impacted the Rand’s value, leading to its “collapse” to R2 per US dollar by 1985. While investor sentiment initially improved after the end of Apartheid in 1994, structural economic challenges and external emerging market crises exacerbated volatility, resulting in the Rand weakening to R6 per US dollar by 1999.
The early 2000s witnessed a catastrophic decline in the Rand’s value, plummeting to R13.85 per US dollar. South Africa was entangled in the Asian Tiger Emerging Market debt crisis, prompting developed markets to withdraw their investments. Initially, the Reserve Bank attempted to defend the currency, but eventually succumbed to the pressure and allowed it to float freely.
Amidst these challenges, the Rand began to recover in the mid-2000s, regaining its value to around R6 per US dollar. This recovery was fueled by the boom in commodities due to China’s rapid development and the strong global demand for these resources.
Not many years later, we faced the 2008 Global Financial Crisis, which triggered another sell-off and weakened the rand to R11 = US$1. South Africa, like other countries, was affected by the global flight to safety, but it was also grappling with electricity shortages, rising debt, and political corruption that further pressured the currency. The decline culminated in the firing of finance minister Nhlanhla Nene by Jacob Zuma in December 2015, known as “Nenegate,” which led to the rand plunging to R16 = US$1.
I present these factors to illustrate that the rand has experienced periods of high volatility, significant sharp declines, and remarkable recoveries. Since 2016, except for a brief strengthening during Cyril Ramaphosa’s election as president, the currency has been primarily driven by global risk appetite and commodity prices. However, domestic politics, corruption scandals, and weak economic growth have also contributed to its fluctuations. The rand weakened during the Covid pandemic, recovered in the early 2020s, and has hovered between R17 – R20 = US$1 since 2023/2024.
The rand is one of the most liquid emerging market currencies, traded extensively and often serves as a proxy for general sentiment towards emerging markets. It is influenced by commodity prices and is susceptible to significant swings based on global risk sentiment. Initially, the rand held one of the world’s strongest currencies, reflecting South Africa’s gold wealth. However, decades of sanctions, political instability, weak growth, and global pressure have led to its steady depreciation. As with all market-related factors, the depreciation is not consistent or smooth, with periods of sideways movement and rand strength.
We are currently in a position where the relative strength or weakness of the world’s reserve currency, the US Dollar, is influenced by global economic trends, monetary policy, and investor sentiment. Several factors could potentially weaken the USD, such as potential interest rate cuts by the Federal Reserve, which would make US assets less attractive and reduce investor demand, leading to a weaker dollar. Additionally, large budget deficits and rising debt erode long-term confidence in the dollar, general diversification away from the dollar, and shifts in risk appetite as capital flows into emerging markets and commodities.
However, this could also portend a period of stability or even appreciation for the rand as capital flows to capture stronger commodity prices and higher bond yields. This positive trend could persist for months or even years, but it ultimately depends on addressing South Africa’s domestic challenges. We still need to fix our low growth, port, rail, and electricity infrastructure, and fiscal irresponsibility. Nevertheless, we may be in a period of a stronger rand for the next few months or years.
It’s important to note that the rand’s strength is often offset by stronger equity markets and higher commodity prices. However, where investors have significant exposure to offshore equity markets, it can dampen the rand’s performance in the short term. As South Africa accounts for less than 1% of the global economy, it still makes sense to have exposure to the developed world and the numerous well-run companies and industries that exist outside our borders. However, it’s crucial to keep in mind that these exposures may not look as favorable in the short term.
The South African Rand
The Rand, introduced on February 14, 1961, replaced the South African pound as South Africa transitioned from a commonwealth member to a republic. Named after the Witwatersrand, the region where Johannesburg was built and where most of South Africa’s gold deposits were discovered, the Rand held significant importance during that era. Gold was a cornerstone of the global monetary system, and South Africa’s robust gold exports contributed to the currency’s strength.
However, the Bretton Woods system, which had been the foundation of the international monetary system, was dismantled in 1971. This shift led to the introduction of the Fiat system, where currencies float against each other without the need for gold reserves. At the time of the Rand’s launch, it traded at approximately R0.72 per US dollar.
In the 1980s, South Africa faced political instability, sanctions imposed by developed nations, and disinvestment due to Apartheid. These factors negatively impacted the Rand’s value, leading to its “collapse” to R2 per US dollar by 1985. While investor sentiment initially improved after the end of Apartheid in 1994, structural economic challenges and external emerging market crises exacerbated volatility, resulting in the Rand weakening to R6 per US dollar by 1999.
The early 2000s witnessed a catastrophic decline in the Rand’s value, plummeting to R13.85 per US dollar. South Africa was entangled in the Asian Tiger Emerging Market debt crisis, prompting developed markets to withdraw their investments. Initially, the Reserve Bank attempted to defend the currency, but eventually succumbed to the pressure and allowed it to float freely.
Amidst these challenges, the Rand began to recover in the mid-2000s, regaining its value to around R6 per US dollar. This recovery was fueled by the boom in commodities due to China’s rapid development and the strong global demand for these resources.
Not many years later, we faced the 2008 Global Financial Crisis, which triggered another sell-off and weakened the rand to R11 = US$1. South Africa, like other countries, was affected by the global flight to safety, but it was also grappling with electricity shortages, rising debt, and political corruption that further pressured the currency. The decline culminated in the firing of finance minister Nhlanhla Nene by Jacob Zuma in December 2015, known as “Nenegate,” which led to the rand plunging to R16 = US$1.
I present these factors to illustrate that the rand has experienced periods of high volatility, significant sharp declines, and remarkable recoveries. Since 2016, except for a brief strengthening during Cyril Ramaphosa’s election as president, the currency has been primarily driven by global risk appetite and commodity prices. However, domestic politics, corruption scandals, and weak economic growth have also contributed to its fluctuations. The rand weakened during the Covid pandemic, recovered in the early 2020s, and has hovered between R17 – R20 = US$1 since 2023/2024.
The rand is one of the most liquid emerging market currencies, traded extensively and often serves as a proxy for general sentiment towards emerging markets. It is influenced by commodity prices and is susceptible to significant swings based on global risk sentiment. Initially, the rand held one of the world’s strongest currencies, reflecting South Africa’s gold wealth. However, decades of sanctions, political instability, weak growth, and global pressure have led to its steady depreciation. As with all market-related factors, the depreciation is not consistent or smooth, with periods of sideways movement and rand strength.
We are currently in a position where the relative strength or weakness of the world’s reserve currency, the US Dollar, is influenced by global economic trends, monetary policy, and investor sentiment. Several factors could potentially weaken the USD, such as potential interest rate cuts by the Federal Reserve, which would make US assets less attractive and reduce investor demand, leading to a weaker dollar. Additionally, large budget deficits and rising debt erode long-term confidence in the dollar, general diversification away from the dollar, and shifts in risk appetite as capital flows into emerging markets and commodities.
However, this could also portend a period of stability or even appreciation for the rand as capital flows to capture stronger commodity prices and higher bond yields. This positive trend could persist for months or even years, but it ultimately depends on addressing South Africa’s domestic challenges. We still need to fix our low growth, port, rail, and electricity infrastructure, and fiscal irresponsibility. Nevertheless, we may be in a period of a stronger rand for the next few months or years.
It’s important to note that the rand’s strength is often offset by stronger equity markets and higher commodity prices. However, where investors have significant exposure to offshore equity markets, it can dampen the rand’s performance in the short term. As South Africa accounts for less than 1% of the global economy, it still makes sense to have exposure to the developed world and the numerous well-run companies and industries that exist outside our borders. However, it’s crucial to keep in mind that these exposures may not look as favorable in the short term.
Asset Class Returns
The table below represents a rolling year view of the major asset class returns that we track. It offers a view of the asset classes we use to diversify your portfolio.