Cape Town - South Africa’s rand weakened for a second day and bonds fell after an Israeli missile test raised concern that the conflict in the Middle East is escalating, damping demand for riskier assets.
The currency depreciated 0.3 percent to 10.3108 per dollar as of 4:17 p.m. in Johannesburg, retreating from a 0.4 percent advance earlier.
The yield on the government’s benchmark 10.5 percent bonds due December 2026 climbed nine basis points, or 0.09 of a percentage point, to 8.53 percent, the first increase in three days.
The dollar gained against all but one of the 24 emerging- market currencies monitored by Bloomberg after the missile launch, which was initially reported by Russia’s RIA Novosti news service.
Israel was testing its missile-defense systems, Yaacov Havakook, head of the Defense Ministry’s international media department, said by phone.
The test came amid speculation the Federal Reserve will start tapering monthly bond purchases, trimming appetite for riskier assets.
“Emerging-market currencies are under pressure across the board,” Jim Bryson, head of currency trading at Rand Merchant Bank, said by phone from Johannesburg.
“There was a knee-jerk response to the missile-test headlines, and the tapering story is still there.”
President Barack Obama is seeking congressional approval for a military strike against Syria for what his administration says was a sarin gas attack last month by the government in Damascus.
The MSCI Emerging Markets Index erased gains of as much as 0.5 percent after the missile test, and was trading 0.3 percent lower at 3:18 p.m. in London.
The rand has weakened almost 18 percent this year, the most among developing nations after India’s rupee, according to data compiled by Bloomberg.
Foreign investors sold a net 316 million rand of South African bonds and 749 million rand of equities yesterday, cutting inflows into the nation’s stock and debt markets this year to 50.1 billion rand, according to JSE Ltd. data.
The country’s purchasing managers’ index rose, according to a report yesterday, signaling an expansion in manufacturing growth as the weaker rand makes exports more attractive.
The US Institute for Supply Management said today that factory output expanded more than forecast in August, after gauges from the UK to China showed manufacturing is reviving.
“It really seems that the global economy is picking up steam,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments.
“Clearly, emerging-market problems aren’t over. This remains a major risk for the rand.” - Bloomberg News