London - African assets tumbled amid the global markets rout on Monday on concern China’s economy is slowing and as commodities fell to a 16-year low.
Eight of the world’s 10 worst performing currencies as of 12:27 pm in London were African, with Zambia’s kwacha and South Africa’s rand falling to new lows against the dollar. Nigeria’s Eurobonds soared to record highs, while Ghana’s dollar yields rose above 10.5 percent for the first time since December.
“It’s crazy right now,” Stephen Bailey-Smith, head of Africa strategy at Standard Bank Group, said by phone from London. “Everyone’s putting on a helmet and just hoping to get through the day. African Eurobonds have been hit harder than average because they’re perceived as being more commodity-dependent.”
More than one quarter of sub-Saharan Africa’s exports go to China, according to data compiled by Bloomberg. Beijing’s devaluation of the yuan last week heightened concern that slowing growth will depress prices of commodities from oil to copper, with Brent crude falling below $45 a barrel for the first time since March 2009 on Monday.
Zambia, which derives almost 70 percent of export earnings from copper, saw its currency drop as much as 4.6 percent to 8.58 per dollar before paring losses to trade 2.1 percent weaker at 8.38 by 1:10 p.m. in the capital, Lusaka, still a record low on a closing basis. Copper tumbled 2.4 percent to $4 935 per metric ton, the lowest since July 2009.
Intervention ‘suicidal’
The southern African nation’s government said it would be futile to try and stop the rout by selling dollars in the currency market.
“You cannot intervene in a currency market or the speculators will take you to the cleaners,” Deputy Finance Minister Christopher Mvunga said by phone from Lusaka. “That’s suicidal if you do that.”
Nigeria and Angola, Africa’s biggest oil producers, may be forced to abandon efforts to sustain their currencies amid the turmoil, according to London-based advisory firm Capital Economics.
Forward prices for the naira widened even as the spot price, which has been mostly flat since the start of March amid central bank curbs on trading, was unchanged at 199.05 per dollar. Six-month non-deliverable forwards, which indicate traders’ expectations for the interbank price in that period, jumped 2.3 percent to 242 per dollar, the highest since March 27. One-month forwards surged 3.6 percent, the most since Feb. 10, to 214.
The Nigerian central bank’s spokesman, Ibrahim Mu’azu, didn’t answer Bloomberg’s calls to his mobile.
‘Heavy blow’
“Falling commodity prices have dealt a heavy blow to many currencies in sub-Saharan Africa,” Capital Economics analysts including John Ashbourne said in a note. “This general weakness comes despite central bank efforts to support ailing currencies, which we doubt will be successful.”
Yields on a $1 billion Eurobond due in Aug. 2023 for Ghana, which exports gold and oil, climbed 32 basis points to 10.54 percent, the highest on a closing basis since Dec. 16. Rates on Nigeria’s $500 million of debt due in July 2023 climbed 24 basis points to 8.26 percent, a record.
Yields on Zambia’s Eurobonds due April 2024 rose above 10 percent for the first time, while a September 2020 security issued by Mozambican tuna company Empresa Mocambicana de Atum SA, or EMATUM, and guaranteed by the government, jumped 25 basis points to a record 9.87 percent.
BLOOMBERG