Ongoing labor strife in South Africa could continue to plague
the country's currency, the rand, and ETFs such as the iShares
MSCI South Africa Index Fund (NYSE:
EZA
), which have heavy exposure to the country's mining
industry.
Strikes in the country's mining and transportation industries
are affecting other areas of Africa's largest economy,
Bloomberg reported
, pressuring the high-beta rand in the process.
Last week, the WisdomTree Dreyfus South African Rand Fund
(NYSE:
SZR
) slid almost five percent. In the spot market, the rand slid 5.3
percent, prompting a blowout for yields on South African
sovereign debt. Yields on benchmark 6.75 percent bonds due March
2021 climbed 25 basis points (0.25 percentage points), the most
since Nov. 11, 2010, to 6.98 percent in Monday's session,
Bloomberg reported.
SZR, which has just over $4.5 million in assets under
management, has average daily turnover of just 622 shares, but
volume on Friday was nearly six times that amount as traders
fretted over the strength over the commodity currency.
The ETFS Physical Platinum Shares (NYSE:
PPLT
) and the ETFS Physical Palladium Shares (NYSE:
PALL
) have surged since mid-August due to labor strife at South
African mines. South Africa is one of the world's largest
producers of gold, palladium and platinum. Due to the country's
abundance of precious metals resources, the rand is often viewed
as commodity currency, implying a higher level of volatility than
what is seen with currencies such as the U.S. dollar or Japanese
yen.
While decreased production of precious metals can be a boon
for spot prices and ETFs backed by physical holdings such as PALL
and PPLT, lost production can have the opposite impact on country
ETFs. For example, the iShares MSCI South Africa Index Fund has
plunged 5.3 percent in the past five trading days. EZA, which has
almost $494 million in AUM, is off nearly 6.5 percent in the past
month.
The ETF devotes 18.3 percent of its weight to materials names,
making the group the second-largest sector weight in the fund
behind financials.
South African banks are far from immune from the strikes. Last
week, Moody's Investors Service pared its rating on the foreign
deposit ratings of the five largest banks in South Africa. In
September, the ratings agency cut South Africa's sovereign debt
rating to Baa1 from A3. Financials account for almost 26 percent
of EZA's weight.
Even before the strikes, the rand and SZR were struggling due
to South African political volatility
and an unemployment rate that is north of 20
percent
.
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.
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