AlwaysFree: South African Rand Drops to 3-Year Low on Loadshedding Fears

According to Reuters article published on May 10, 2023, the South African rand plunged to a three-year low on Wednesday after a steep drop in the previous day, while international and domestic government bonds also fell, as fears grew of scheduled blackouts known as loadshedding worsening during winter.

At 1530 GMT, the rand was trading at 18.8750 against the U.S. dollar, its weakest level since early May 2020. On Tuesday, the rand had fallen about 1.7%.

South Africa's sovereign dollar bonds dropped, with longer dated maturities falling the most. At 1505 GMT the 2052 maturity was down 0.77 cents in the dollar to 82.8 cents, having fallen more than 1 cent earlier in the day . At one point the yield rose above 9%, its highest in almost six months.

South Africa's struggling state utility Eskom told parliament on Tuesday that there would be a 45-day delay in returning a generating unit online, according to local media.

The delay is likely to add further pressure on the grid during winter, when loadshedding across most parts of the country is already more than 10 hours a day.

"SA bonds and the ZAR (rand) are underperforming their EM counterparts," Kieran Siney of ETM Analytics said in emailed comments on Wednesday morning.

"Until there is a concrete plan to resolve SA's energy crisis that the market buys into, the underperformance will persist, notwithstanding the attractive yields on offer and deep undervaluation in the ZAR."

The government's local bonds also dropped, with yields on the benchmark 2030 bond rising 23 basis points to 10.560%, the highest level since December .

ETM Analytics said in a separate note on Wednesday morning that misleading headlines on Tuesday had sparked the market rout by giving "the impression that was losing control of the grid".

"SA is in trouble, the grid is under pressure, Eskom does face multiple threats, but none of this is anything new," it said.

On the stock market, the blue-chip index of top 40 companies (.JTOPI) ended down 0.17% while the broader all-share index (.JALSH) was flat.

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