Mon Jan 11, 2016/Reuters

By Wayne Cole

Asian shares sank to their lowest in over four years on Monday as doubts mounted about Beijing’s ability to manage the world’s second-biggest economy.

The absence of Tokyo for a holiday only made liquidity even harder to come by, heightening volatility. Currency markets saw some wild swings with the South African rand ZAR=D3 collapsing to record lows at one point before bouncing.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slid 1.8 percent to its lowest since late 2011.

China’s main indexes .CSI300.SSEC slumped more than 3 percent at one point, Australia 1.25 percent and the Philippines .PSI dropped 3.8 percent.

Financial spreadbetters IG predicted opening losses of 0.5 percent for the FTSE 100 .FTSE, 1.5 percent for the DAX .GDAXI and 1.2 percent for France’s CAC .FCHI.

E-mini futures for the U.S. S&P 500 ESc1 fared better, turning flat after an early loss of 0.8 percent.

Commodities were again on the ropes as Brent crude oil LCOc1 shed 79 cents to $32.76 a barrel, while U.S. crude CLc1 was 69 cents lighter at $32.47.

China was again the epicenter of unease as the People’s Bank confounded analysts by guiding the yuan’s midpoint rate sharply stronger, a move that might calm concerns about a competitive devaluation but only added to market confusion as to Beijing’s ultimate intent on its currency policy.

The move was an apparent reversal of the midpoint’s recent weakening trend which included the biggest one-day drop in the guidance rate in five months on Jan. 7.

“Authorities are reluctant to let market forces rule, which along with their indecisiveness and lack of transparency is exacerbating uncertainty,” said Tapas Strickland, an economist at National Australia Bank.

“Understandably, amidst this global markets are selling Chinese policymaker’s ability to control their economy.”

That only heightened tensions ahead of China trade data on Wednesday where declines are expected in exports and imports, underlining just how anemic world trade flows are right now.

Both the Dow .DJI and the S&P 500 .SPX had their worst five-day starts in history last week, and the corporate news flow is unlikely to get any cheerier with the coming results season expected to be a tough one.

S&P 500 earnings are forecast to have dropped 4.2 percent in the fourth quarter, a second straight quarterly decline led by the hard-hit energy and materials sectors.

The pain in stocks and worries over China even outweighed the positive impact of December’s upbeat U.S. payrolls report and burnished the appeal of higher-rated government bonds.

Yields on 3-, 7-, and 10-year U.S. Treasuries all had their biggest weekly declines since early October last year, while five-year yields dropped by the most since Sept. 2013.

The gains continued on Monday with U.S. 10-year Treasury futures TYc1 up 3 ticks, while Fed fund futures <0#FF:> were pricing in a slightly shallower upward path for rates.

In currency markets, the main early news was the yen which is often favored in times of stress as Japan remains the world’s largest creditor nation.

The dollar initially fell half a yen to a near five-five month low of 116.70 yen JPY=, before steadying around 117.22.

Dealers said Japanese investors seemed to be bailing out of long positions in the South African rand by selling rand for dollars and then those dollars for yen.

That saw the dollar surge as much as 10.3 percent at one stage to 17.9950 rand ZAR=D3, before tracking back to 16.6780. That was still up from 16.3150 late on Friday.

The euro started firmer but soon softened to $1.0917 EUR= while the dollar index was all but flat at 98.476 .DXY.

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The Governor of the Central Bank of Nigeria, Mr. Lamido Sanusi, has said that the 2.3 per cent loss recorded in naira’s value is not significant, compared to what other emerging markets lost this year.

Sanusi, who spoke at the 75th anniversary of the Ikoyi Club in Lagos, said every emerging market had lost over 10 per cent of its currency value this year, except Nigeria.

He said, “The naira has been stable between January and August; it lost 2.3 per cent of its value. Everyone has been complaining that the naira lost 2.3 per cent.

“When you look at the South African rand, it lost 17 per cent; the Indian rupee lost about 20 per cent as well; the Indonesian rupiah lost 12 per cent; and the same with the Brazilian currency.

“Every single emerging market and frontier market currency that you can think of has lost value in excess of 10 per cent. We’ve had a stable currency. And to preserve this, we have reserves in excess of $45bn…There has been complaint on that.”

The naira fell the most on Monday in more than 18 months as the CBN held its last currency auction before the implementation of tightened controls of the sales.

According to a Bloomberg report, the naira retreated by 1.1 per cent to N161.55 per dollar in Lagos on Monday, its biggest drop since January 2012 on a closing basis.

This brought its decline this month to 0.1 per cent and pared a quarterly gain of 0.6 per cent.

The CBN will also replace its scheduled wholesale foreign exchange sales (Wholesale Dutch Auction System) with retail auctions (Retail Dutch Auction System) from October 2 (today) to curb dollar demand.

The central bank offers foreign currency twice a week to keep the naira within a range of three percentage points above or below 155 per dollar. The regulator sold $300m on Monday, compared with $300.2m on September 25.

Sanusi maintained that the economy was in a good condition and that the economic outlook indicated that things would continue to be stable in the country.

He added, “From January till date, for the first time since 2008, we had a consistent stretch of inflation at below 10 per cent. Last month, it was 8.2 per cent. They said that by the end of this year, we would be under eight per cent and we would keep inflation in single digit throughout 2014.”

On complaints that banks were not lending to the real sector, the central bank governor said various challenges facing the real sector would prevent it from making reasonable profits even if its operators got loans from the banks.

He argued it was better to keep the naira’s value stable rather than keep interest rate very low at the expense of the naira.

Sanusi said, “So, if people say banks are not lending to the real sector, I say where is the real sector without electricity, without infrastructure, without competent and highly skilled labour, without security? Where is the viable real sector in the economy? Is it the tomato farmer who is going to use 40 per cent to 50 per cent of his output in the farm on the market because there is no storage and other things? Is that good economics? Is it the textile firm that has to provide its own generator, provide its own security, provide its own transportation, build its own road before it can be a real sector?”

He added, “The first thing I begin to talk about when we complain about interest rate is to say are we in this situation because of what the central bank has done? Or are we in this situation in spite of the best effort of the central bank?”

Source: Punch (by Oyetunji Abioye)

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Lagos (INVESTADVOCATE) – The South African rand has been adjudged as one of the worst performing currencies in emerging market currencies in 2013, according to the International Monetary Fund (IMF).

This is coming on the heels of the Fund’s conclusion of Article IV consultation of the IMF’s Executive Board with South Africa.

“The rand has been one of the worst performing emerging market currencies in 2013,” the IMF said.

The IMF Executive Board said in recent years South Africa’s economy has underperformed other emerging markets and commodity exporters, exacerbating South Africa’s already-high levels of unemployment 25 percent (25%) and inequality, and contributing to rising social tensions.

However, IMF Board said bond yields of South Africa rose sharply in May and June as concerns over the Fed’s tapering of quantitative easing and China’s growth outlook led to rising global risk aversion and weaker commodity prices.

According to the IMF, the outlook in South Africa is for continued sluggish growth and elevated current account deficits. “Growth is projected at 2% in 2013 as weak consumption growth and lackluster private investment offset robust public investment and higher export growth. Growth is expected to rise to about 3% in 2014 and 3½% in the medium term, as infrastructure investment gradually relieves supply bottlenecks.

Also, the IMF Executive Board agreed that the monetary policy stance of the country is finely balanced and the inflation targeting framework remains appropriate.

However, they agreed that the exchange rate pass-through to inflation and wage settlements are critical factors in determining the next monetary policy move of the country and advised authorities to stand ready to adjust interest rates as needed.

They also, observed that South Africa’s highly flexible exchange rate is a considerable strength and should be maintained.

The IMF Directors further affirmed the costs of accumulating and managing foreign exchange reserves and agreed that increasing reserves will further contribute to lower vulnerabilities.

They encouraged the authorities to give consideration to regular and pre-announced auctions to buy foreign exchange as done by some other countries.

In the 2013 budget review of South Africa, the average nominal trade-weighted rand was 8.6% weaker in 2012 compared with 2011 and in real terms about 5.7% weaker and movement in the rand will continue to reflect global risk appetite and investor sentiment towards South Africa.

Pravin Gordhan, South Africa’s finance minister had told the Financial Times in an interview that there is an inability to find coherent and cohesive responses across the globe to ensure that there is reduction in the volatility of currencies in particular, but also in sentiment.

The South African rand plummeted against the dollar this year, making it one of the world’s worst-performing currencies.

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