Currencies across the globe look poised to collapse in the face of tightening fiscal policy and looser monetary policy from foreign central banks. And it’s not just the banks that are calling for lower rates and more liquidity. Goldman Sachs is demanding Quantitave Easing Version 2 – nicknamed QE2. And even Nobel Memorial Prize winner Paul Krugman, who’s rated among the world’s top 100 intellectuals by Prospect, is onboard. So the only question is: Will the QE2 leave South Africa “out at sea”?
The rand has gradually strengthened against the pound, dollar and euro over the last year, but it looks like it might have finally turned the corner. We know that the South African Reserve Bank has been voicing concerns over our strengthening currency for some time. And with Governor Gill Marcus’s next Monetary Policy Committee meeting round the corner and inflation still in the target band, the forward market is predicting around a 40% chance of a 25 basis point cut.
In recent comments the central bank said it’s hoping the move will alleviate some of the pressure the strong currency is putting on our export sector. But if the rand devalues in line with collapsing currencies across the globe how can you profit?
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One way is to buy the Absa’s NewRand ETF. The idea of this exchange traded fund is to track the New Rand Index which was developed and calculated by Absa Capital. The index tracks a basket of South Africa’s top ten rand hedge stocks and was originally envisaged as a way to take advantage of fluctuations in the rand.
It’s also one of the cheapest ways to pick up a diversified portfolio of defensive blue chips. Right now it includes three big gold miners: AngloGold Ashanti, Harmony and Goldfields as well as tough financials like Liberty and Investec.
While being very defensive it’s also poised to take advantage of the recovery by including consumer goods groups like SAB, Steinhoff and Richemont.
Unless you’re actively trading currencies (and going short more often than not) this is the best way to take advantage of the coming global currency collapse.
