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South Africa: Xenophobic Mayhem Hammers the Currency
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Business Day (Johannesburg)
21 May 2008
Posted to the web 21 May 2008
Mariam Isa
Johannesburg
THE rand slid sharply against major currencies yesterday as photographs of xenophobic violence hit the front pages of leading international news- papers, tarnishing SA's image in the eyes of foreign investors.
A downturn in global appetite for risk played a role in the unit's slide of 1,7% to the dollar and 2,6% to the euro, which erased much of its gains of the past two sessions. Those gains were in step with other emerging-market currencies.
Traders said stark images of violence on the front pages of the Financial Times, Guardian and New York Times, prompted a kneejerk retreat in the rand yesterday.
"The photographs had a marked effect," said Paul Kamp, a senior dealer with Standard Chartered in London. "The violence has been going on for a while, but when investors see these pictures on the front pages they wonder what's going on -- it's not nice to see."
More than 20 people were killed in the past two weeks in a wave of violence against African immigrants accused by some poor South Africans of stealing jobs and houses.
The rand held at an 11-week peak to the dollar at the start of the week, buoyed by an upswing in global risk appetite which propelled the JSE to a record high for the fourth successive trading day.
But a fall in demand for equities added to the shock delivered by images of rioters and burning buildings that hit foreign newspapers' front pages for the first time yesterday.
That helped knock the rand to R7,68 to the dollar from Monday's closing R7,53/$.
That happened despite the dollar's descent to a one-month low against a basket of six major currencies after a report that interest rates in the euro zone may rise soon.
"Equities have turned a bit softer but our situation is exacerbated by the xenophobic violence," said Dave Gracey, Nedbank Capital's head of foreign exchange and fixed income.
Overseas investors account for most of the trade in the rand, the fifth most actively traded emerging-market currency.
Gracey said if the rand closed above R7,65/$ it would head to R7,75, the next big technical level.
The unit has weakened by more than 12% against a trade-weighted basket of currencies monitored by the Reserve Bank this year in a trend set to stoke inflation and prompt further hikes in interest rates. The violence will not change SA's economic fundamentals, but there is concern about its effect on tourism, which accounts for 8% of the economy and more than a million jobs.
Lehman Bro-thers emerging markets analyst Peter Attard Montalto said the attacks compounded concern about SA's ability to host the 2010 Soccer World Cup.
"SA's success has been partly due to immigrants from surrounding countries," he said. There are about 5-million immigrants in SA, mostly from Zimbabwe.
Attard Montalto said a raft of key economic data due next week, combined with risk aversion and continued xenophobia, could conspire to drive the rand back above the R8/$ level in the near term. That level was last breached in late March, when the rand weakened to a five-year low of R8,25/$.
Business Unity SA condemned the attacks in "the strongest possible terms".
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"These attacks have done a lot of damage to the country's moral stature, especially in so far as tolerance and inclusion are concerned. It is our view that they should be treated as criminal offences, and the perpetrators treated as such."
Did you really think it would'nt.
The pictures coming from South Africa these days are shocking and shameful for South Africans of goodwill, for Africans, and for all of us who believed SA is kind of island of democracy and tolerance in a continent ravaged by stupidity associated to old pals: famine, corruption, civil war, etc..
We were wrong, as we have forgotten that in SA there are also stupid Black Africans who think that behaving as monkies is the way of solving problems. I am sorry if my words hurted someone, but I could not see other thing than a monkery behavoir.
Rational people never... [Read Full Text]
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