Emerging Markets Suffer Fresh Blow As South Africa Falls Into First Recession Since 2009

Well, South Africa is in a recession.

Q2 GDP fell an annualized 0.7% QoQ, missing estimates and confounding all but one economist surveyed by Bloomberg ahead of the report. The economy contracted by 2.6% in the first quarter. This is the first recession since 2009 and it marks a rather inauspicious start for Cyril Ramaphosa.



Two people who aren’t surprised are Nedbank’s Mehul Daya and Neels Heyneke, whose research on dollar liquidity we’ve highlighted quite a bit in recent months. “We are not too surprised that South Africa has slipped into a recession,” Daya said Tuesday, adding that “we have had warning signals of this since the start of 2018 even despite Ramaphoria — this is because the financial cycle in South Africa has become bigger, more disruptive on the real economy than most acknowledge.”

To be clear, this was the last thing the rand needed. ZAR careened as much as 2.5% lower on the news and is the worst EM performer on Tuesday.


The currency has been under fire with the rest of the EM complex and had an extremely rough go of it in August.



Multiple factors weighed on ZAR last month including, of course, concerns that it’s vulnerable from a fundamental perspective (current account) and thus likely to be one of the next dominos to tip after Turkey.

On August 12, just hours after USDTRY was quoted as high as 7.23 coming off a weekend during which Erdogan railed against the U.S. and pledged not to raise rates or seek an IMF lifeline to stop the bleeding in the lira, USDZAR flash crashed in yet another apparent Mrs. Watanabe stop out moment.One-month historical volatility jumped to its highest since 2016 in August.



Notably, implied volatility picked back up amid renewed EM turmoil to close August after moderating during the dollar’s mid-month breather.


ZAR also felt the heat from a commodities selloff and stumbled with Naspers, a proxy for Tencent, which surprised the world by reporting its first profit drop in ten years and missing wildly on the top line when the company delivered quarterly results on August 15. Naspers would subsequently rally, but that quickly faded toward the end of the month.

“The rally post the latest Tencent results has lost momentum and the price is again breaking out of the bull trend that has been intact since 2011”, the above-mentioned Mehul Daya wrote, in his most recent note, adding that while “Naspers was obviously supported by the weak rand, [that] only helps so much and then global equity prices take over.”

You can debate whether the selloff in ZAR is overdone, but one thing’s for sure on Tuesday: This is not the kind of news the battered EM complex needed, and it’s just as likely as not to perpetuate the weakness in developing economy assets that started to show back up again late last week.

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8 thoughts on “Emerging Markets Suffer Fresh Blow As South Africa Falls Into First Recession Since 2009

  1. The other factor at play in South Africa is the persistent attack against private property, most recentently Rhamaposa’s announcement that they will seek to ammend the Constitution so that white farmers’ farms can be expropiated without compensastion. The ruling party (ANC) is increasingly capitulating to a radical leftist part (the EFF) which is overtly racist and pro expropiation and nationalization. Confidence in South Africa is waning.

  2. Congrats H! You have attracted the attention of the alt right propaganda machine!

    Lance is either an ignorant moron brainwashed by the White Nationalist alt right propaganda or a fake profile working on a social media farm somewhere.

    1. Nope, a South African who lives in South Africa and oves his country. Go read the local newspapers, or, better still, South African Parlimentary minutes. Don’t have to believe me re land expropiation without compensation. Let me give you one example of the EFF’s Malema (it’s President) and the sort of speech that goes unchecked. We have a city called Durban and it’s mayor is a “white” man. Malema, in a public speech issued the following threat, and I quote, “White man we are going to cut your throat”. You’ll find it on YouTube if you want to. Malema also loves publically singing the song whose main line is “Kill the Boer” ie Kill the Farmer. The murder of farmers in this country is substantially higher than the “normal” murder rate (which is amongst the highest in the World). The killing would be one thing but the torture that routinely happens is beyond imagination. For example, running a bath of boiling hot water and then drowning kids in it or taking an electic drill and drliing holes in 70 and 80 year old people or raping maothers and children in front of fathers or cutting off hands or feet. We have real problems here despite the increasing poverty of the majority of South Africans, that more than half the population is unemployed, our teachers cannot even pass the school exams that are set for the children they apparently teach. Our institutions are riddled with corruption – Steinhoff beinga great example. Billions of Rands are stolen from public coffers – all to the detriment of the poorest of the poor in this country. And it is not “whites” that suffer the most (as most of them are privaledged and safe in their gated communities) but “black” South Africans who bear the brunt of murder, rapes (again, amongst the highest rates in the World, not to mention HIV/Aid rates and the hundreds of thousands of orphans that have resulted because their parents are dead). If you want to comment, do some homework first. Apart from the horrendous social conditions in this country out formerly trusted and respected financial markets and institutions are fast loosing any credibility they had and the threat to private property has rattled investor confidence.

      1. I did do my research including talking to my friends who live in SA. Your take on the conditions is not unfounded, but not fully representative of the totality of what is happening. You are falling prey to some alt right propaganda designed to make you fearful and controllable. The property rights issue is the key subject they use to fear monger white people. The truth of the property right issue us very different than you have presented. If you are actually someone who lives in SA, perhaps you need to check you sources and their agenda. They have led you to an uninformed opinion.

        1. Of course it is not representative of the totality – there are many wonderful people here doing many wonderful things. No one claimed it was. Many of the most outspoken politicians and leaders against what Rhamaphosa and the ANC are attempting re land issues (in an effort to placate the EFF and to appeal to populist sentiment) are not “white”. They understand that a fundamental right is being attacked and that is the start of a very slippery slope. There concern is not for “whites” but for the people of South Africa as a whole. It’s not a white-black thing (despite many politicians in this country constantly playing the race card). The point of my original post is that a contributor to the decline of the Rand is a growing unease and increasingly less positive (or even negative) sentiment regarding the future of this country and its economy due to the changes that are currently taking place politically within the country. Over and Out.

        2. I quote from Heisenberg’s most recent post re Rand “Bloomberg’s Benjamin Dow writes, adding that “traders have no incentive to ease their assault on the ZAR with two material catalysts on their side – a Moody’s credit-rating decision on October 12 and the ongoing land reform process.” As I originally pointed out, the land reform/Constitution ammendment/expropiation without compensation is making people worried and, as my post said, it is one of the contributors to the Rand’s decline. Bloomberg is stronger: one of two “material catalysts”.

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