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Can mining strikes offset currency headwinds?
Platinum and the Rand: Can mining strikes offset currency headwinds? Platinum prices have rebounded by over 20% during 2016, as the South African Rand (ZAR) has strengthened 4%. A stronger ZAR should constrain supply by narrowing already stretched mining company margins. Opposing forces are likely to keep price volatility elevated in coming months as a potentially weaker ZAR balances the threat of output cuts from strike action.
Economic conditions are challenging to say the least. South African growth is expected to be just 0.6% in 2016 according to the IMF, from 1.3% in 2015, the lowest in over six years. Rising social tensions are a result of burgeoning unemployment. Unemployment is at the highest level since records began in 2008, at nearly 27% of the population, according to Stats SA.
Drought is impacting food prices, driving inflation higher, and at the same time the central bank is raising rates to try and keep prices in check. Raising rates to offset supply side inflation and reduce capital outflows is a sign of desperation and the local currency is unlikely to be a beneficiary of such action. Indeed, the South African Reserve Bank notes that the weaker currency could be fuelling inflationary pressures.
As a general rule of thumb, investors should be wary of those EM countries that are tightening monetary policy to stave off capital flight, especially when there is little inflationary pressure and weak growth – South Africa is a good example. With lacklustre outlook for the economy, the Rand is likely to remain weak.
Early June sees the potential for a credit rating downgrade for South Africa from S&P Global Ratings, with consensus economist expectations that the country’s rating will enter junk territory by end-2016. The IMF’s most recent mission to the country suggests that the government’s budget target ‘may be challenging’. A decrease to non-investment grade is likely to prompt further capital outflows and see the ZAR move lower against the USD.
The close correlation between the currency and platinum should see metal prices follow ZAR lower in the near term. However, later in June, and with another supply deficit forecast in 2016, the platinum price is likely to receive support from potential output reductions resulting from contract negotiation activity and possible strike action[i].
(click to enlarge)
[i] Recent strike action in South Africa in 2012 and 2014 lifted the platinum price by 17% and 0.5%, respectively.
Martin Arnold, Global FX & Commodity Strategist at ETF Securities
Martin Arnold joined ETF Securities as a research analyst in 2009 and was promoted to Global FX & Commodity Strategist in 2014. Martin has a wealth of experience in strategy and economics with his most recent role formulating an FX strategy at an independent research consultancy. Martin has a strong background in macroeconomics and financial analysis – gained both at the Reserve Bank of Australia and in the private commercial banking sector – and experience covering a range of asset classes including equities and bonds. Martin holds a Bachelor of Economics from the University of New South Wales (Australia), a Master of Commerce from the University of Wollongong (Australia) and attained a Graduate Diploma of Applied Finance and Investment from the Securities Institute of Australia.
Hashdex Nasdaq Crypto Index ETP, den största kryptoindexprodukten i Europa med över 500 miljoner USD i AUM, har nominerats till ETF Stream Awards 2024, i kategorin ”Digital Assets ETP Of The Year”!
Hashdex är glada över att se sitt engagemang för att tillhandahålla innovativ, reglerad tillgång till kryptotillgångsklassen erkänd. Detta erkännande belyser deras ledarskap när det gäller att utveckla kryptoinvesteringslösningar.
Hashdex Nasdaq Crypto Index ETP, den största kryptoindexprodukten i Europa med över 500 miljoner USD i AUM, har nominerats till ETF Stream Awards 2024, i kategorin ”Digital Assets ETP Of The Year”!
Detta erkännande belyser Hashdex engagemang för att tillhandahålla innovativa, robusta produkter som förenklar tillgången till kryptotillgångarnas värld. HDX1 erbjuder diversifierad exponering och tydlighet på en komplex marknad, vilket förkroppsligar Hashdex uppdrag att föra kryptons framtid in i nutiden av investeringar.
Prisutdelningen äger rum den 28 november i London, där Hashdex kommer att ansluta sig till branschens främsta ETF-spelare.
For years, India has been ramping up to contend with China as the region’s top technology leader. Pandemic-era supply chain issues hastened its successes in luring foreign tech firms. Now, equity investment flows are following suit. Dina Ting, Head of Global Index Portfolio Management at Franklin Templeton, highlights a few factors behind how the subcontinent is benefiting from rotational flows.
As China braces for renewed friction over President-elect Donald Trump’s tariff threats, investor flows may be following similar currents as those of regional supply chain shifts—that is to say, diversifying from China and toward opportunities in markets such as India and Japan.
After the People’s Bank of China revealed the most aggressive stimulus package it’s rolled out since the COVID-19 pandemic, China stock markets saw a short-lived rally at the end of September. A lack of detailed measures targeting consumption seems to have disappointed investors and led the bullish sentiment to deflate.
Adding to the country’s economic woes are societal changes like falling birthrates and a rapidly ageing population. Estimates by China’s National Health Commission suggest the country’s elderly population will grow to over 400 million by about 2035. To better cope with this crisis, China’s statutory retirement age will be extended, starting in January 2025, for the first time since the 1950s.
India investors, meanwhile, are finding the subcontinent—which has already overtaken China as the world’s most populous nation—appealing for its relative immunity to global risks, given its domestic-driven economy. Its younger labor force has also attracted a market pivot to this prime alternative to China manufacturing. For the 12-month period prior to China’s September 2024 stimulus announcement, US-listed India equity exchange traded funds (ETFs) garnered US$7.5 billion in flows—a sharp contrast to the US$6 billion in outflows experienced by China ETFs over the same period.1
Judging by India’s impressive initial public offering (IPO) environment, businesses there are feeling the optimism. The country’s 258 IPOs accounted for 30% of the global total by number by the end of September and 12% by the amount of money raised, in an economy that makes up just over 3% of global GDP.2
And investors in India are taking note. Aided by the improving digitalization of finance and increased internet access, India’s middle class is also an expanding retail investor class. By one measure, nationwide stock trading accounts nearly tripled from 2019 to 2023 to roughly 140 million.3
In dollar terms, total returns for Indian stocks have risen by 93% over the past five years, compared with about a 24% rise overall for emerging markets and drop of 5% for China stocks over the same period.
Many investors seeking to better diversify emerging market exposure or layer in targeted broad country allocation can tap single-country exchange-traded strategies.
Emerging markets in the Asia region are not the only beneficiaries of a potential US-China trade war. Earlier this year, investors were already driving up flows into Japan ETFs. Market watchers consider Japanese stocks to be indirect beneficiaries of Trump’s reflationary economic policy—which may keep interest rates high, thereby boosting the dollar and weakening the yen to the advantage of Japanese exporters.
The MSCI Japan Index is up nearly 21% in US dollar terms in the one-year period ending October 31, 2024. Consumer discretionary, financials and industrials holdings led gains during this time.
An element of uncertainty around the policies of a second Trump term, however, are still causing jitters around Asia, especially given the president-elect’s transactional approach to international relations.
Fortunately, Japan is seeing a renaissance in its semiconductor industry for which Tokyo is investing heavily (more than US$25 billion through 2025) and has established strong multilateral trade partnerships.
Japan has already elevated its role in global supply chain reorganization in recent years, and seeks to take advantage of its clout in joint free trade initiatives, such as the US’s Indo-Pacific Economic Framework for Prosperity to strengthen its regional supply-chain leadership.
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