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RAND: Morgan Stanley went long USD/ZAR at the NY close on Thursday with a target
of ZAR15.50 and a stop at ZAR14.10.
- MS "remain convinced that South Africa will underperform into the medium-term
budget update on October 24 and ZAR could weaken to 15.5. The growth has been
weak despite the improvement in politics. This is likely to weigh on the fiscal
deficit as our economist expects that the impact on fiscal revenue this year
from weak growth could be as much as R25 billion or 0.5% of GDP. Meanwhile,
foreign positioning in SAGBs remains heavy as Treasury data show that foreigners
added R3 billion SAGBs between June and August, in contrast to the outflows
suggested by JSE data. As of August, foreigners hold R713 billion SAGBs, R30
billion more than the level before the ANC elective conference. The latest
development is that UST is rising. Given that SAGBs has the longest duration in
the GBI-EM portfolio and investors are largely OW SAGBs, we believe that South
Africa is the most vulnerable country in the current environment and investors
will sell ZAR to hedge out their bond exposure."