Trend remains your friend – invest abroad to benefit from Rand weakness

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From a broader perspective the Rand had another turbulent month, but the trend towards long-term weakening which has been with us for the past year is still very much intact. It’s one of the obvious signals to protect yourself against further weakening of the currency.

The other obvious signal came with the SA Reserve Bank’s unexpected cut in interest rates. By so doing, the SARB is telling us that for as long as inflation remains subdued, it will progressively drop interest rates. That, in turn, reduces the appeal of the “carry trade” where forex players keep the Rand artificially high by arbitraging between the relatively high rates in SA and the low ones in developing countries.

Add to that the stagnant SA economy and policy makers who haven’t the foggiest about how to lift it out of the doldrums and the message is clear: keep hedging yourself against Rand weakness. Keep investing offshore.

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