The Dollar Is Rising… In South Africa, That Is
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With aging power plants and failing infrastructure, South Africa needs an injection of investment cash into its power sector. And while its economy technically maintains a budget surplus, it’s constantly battling things like unemployment and poverty.
The chart you’re looking at compares the South African rand’s performance (versus the U.S. dollar) and the iShares MSCI South Africa ETF (EZA). This is what’s called an inverse correlation. When the rand becomes inflated, South African companies don’t perform well.
The opposite is also true: When the rand gains in strength versus the U.S. dollar, South African companies perform better.
Over the past couple months we’ve seen exactly that. The interesting thing is South Africa is in the midst of a power crisis. In fact, many of its mining companies are scared they won’t have enough power to produce things like gold and platinum.
With aging power plants and failing infrastructure, South Africa needs an injection of investment cash into its power sector. And while its economy technically maintains a budget surplus, it’s constantly battling things like unemployment and poverty.
In short, a commodities bull run, with gold and platinum prices soaring, won’t mean much to the resource-rich country if it doesn’t have the power to produce them — or if the workers wage strikes against low wages and immigrant workers.
My take? Without some positive news on the situation soon, expect the EZA to drop back, and the rand to inflate a bit more. Here’s some numbers: EZA could drop to $110 and the rand versus the U.S. dollar could fall to a ratio of 7:1.
S.R. Nunnally
Editor, Taipan Trader
P.S. The US dollar has been rising in India and Pakistan, too… So sharply that one might expect a bit of a backlash here. Check out the chart, and see for yourself.
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Source: The Dollar IS Rising… In South Africa, That Is
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Tags: commodities, EZA, Immigrant Workers, India, International, Ishares Msci, Mining Companies, Pakistan, Platinum Prices, Power, Power Plants, Power Sector, South Africa, South African RandAbout the Author
As Editor of the investment advisory service Taipan Trader, Sara Nunnally brings a fresh perspective and an exciting approach to the world of international investing. Traveling to such countries as Vietnam, Morocco and Spain, Sara investigates for you the secret world of emerging and frontier markets that are ready to explode in profits. Sara applies a balanced technique with a completely new focus of investment opportunity and profits for her members.
Taipan Daily is your free resource for late-breaking investment opportunities to help you beat Wall Street to the profits. Filled with investment analysis and insight from every sector. Taipan Daily delivers just the right blend of safe opportunities with the fast-moving plays, so you have an insider's edge over Wall Street and other investors.