Brown Brothers Says Rand to Fall on Slower Growth - 理財

Currency Strategists: Brown Brothers Says Rand to Fall on Slower Growth
June 22 (Bloomberg) -- South Africa's rand may drop to a three-year low by
December as central banks around the world raise borrowing costs and erode
expectations for global economic growth, according to Brown Brothers Harriman
& Co.

The rand set a 29-month low of 7.218 per dollar yesterday and has declined the
past eight weeks. It dropped even as the nation's central bank lifted
interest rates for the first time in almost four years on June 8, a sign that
investor concern over dimmer growth prospects is outweighing the appeal of
higher rates, said Brown Brothers.

``The markets are turning from chasing returns to preserving capital,'' said
Marc Chandler, global head of currency strategy at Brown Brothers in an
interview from his New York office on June 20. ``People are taking money out
of emerging market assets, including those in South Africa.''

From 7.1 at 8:06 a.m. in London, the rand may weaken to 7.4 per dollar in three
months and 7.8 per dollar by year-end, the weakest since July 2003, according
to Chandler.

The currency has fallen 13 percent since May 12, the day gold, its biggest
export, touched a 26-year high. Gold has lost 19 percent since then. South
Africa is the world's largest producer of gold. The metal accounts for 13
percent of exports of Africa's biggest economy.

The Turkish lira has dropped by 20 percent since the start of May. The Morgan
Stanley Capital International Emerging Markets Index has tumbled about 20
percent from a record close on May 8.

`Vicious Cycle'

Billionaire investor George Soros said this week the Bank of Japan's decision
to drain money from its banking system over the past three months triggered
the slump in emerging markets. Nine of 15 economists surveyed by Bloomberg
this month said they expect the BOJ to raise its benchmark as soon as July,
after leaving it near zero percent since 2001. Interest-rate futures show
traders are raising bets on two more rate increases this year by the European
Central Bank and the Federal Reserve.

``Higher interest rates in developed countries will slow global growth,'' said
Chandler. ``The world climate that has favored the emerging markets now turns
from a virtual cycle to a vicious cycle.''

Economic growth among the 30 members of the Organization for Economic
Cooperation and Development will slow to 2.9 percent next year from 3.1
percent in 2006, the Paris-based group said last month.

The rand has fallen from 5.945 per dollar on Jan. 24, its strongest since May
of last year.

`Unwinding' Investments

The rand has lost 5.6 percent since June 8, when South Africa's central bank
unexpectedly raised its benchmark lending rate by a half-percentage point to
7.5 percent to keep higher oil prices and a weaker rand from stoking inflation. Only one of 16 economists surveyed by Bloomberg forecast a quarter-point boost, and the rest expected no change.

Turkey's lira has lost about 9 percent since June 7, when the nation's central
bank raised its key rate by 1.75 percentage points to 15 percent, the first
boost in five years. The central bank said June 13 it bought liras in the
market for the first time in two years to halt the currency's slide.

From 1.6647 per dollar today, the lira will weaken to 1.77 by year-end,
according to Chandler.

The lira's decline in the face of the rate increase ``was an important
indication of the power of the unwinding of emerging market investments,
'' Chandler wrote in a June 20 research note.

The Fed has lifted its main rate at 16 consecutive meetings, to 5 percent and
interest-rate futures show traders are certain the target will rise to 5.25
percent next week. The chances of a move to 5.5 percent at the next meeting on
Aug. 8 are 78 percent.

Foreigners Selling

The ECB has raised borrowing costs three times since the start of December, to
2.75 percent, and traders are lifting bets on two more quarter-point
increases this year. Central banks of Sweden, South Korea, India and Denmark
also raised borrowing costs this month.

The yield on South Africa's benchmark 10-year government bond has risen to
3.16 percentage points above yields on similar- maturity U.S. Treasury notes,
from a difference of 2.25 points on May 1, as South African debt underperformed
Treasuries.

Foreign investors sold 1.8 billion rand ($252 million) more of South African
bonds than they bought on June 15, the most in a month, pushing net sales that
week to 2.9 billion rand, according to the Bond Exchange of South Africa.

Brown Brothers' view contrasts with RBC Capital Markets Inc. which predicted
the rand will rally to 6.50 per dollar by year- end.

``We continue to look for opportunities to sell'' the dollar against the rand
, wrote Adam Cole, London-based senior currency strategist at RBC Capital
Markets, in a research note yesterday. Global stocks and commodities will
rebound, which ``will be bullish'' for the rand in the second half of the
year, he wrote.


To contact the reporter on this story:
Min Zeng in New York at [email protected].

Last Updated: June 22, 2006 03:08 EDT

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