African Bonds, Currencies Plunge as Commodity Slump Strikes

African Bonds, Currencies Plunge as Commodity Slump Strikes

Paul Wallace Matthew Hill
August 24, 2015 — 7:40 AM EDT  Updated on August 24, 2015 — 12:05 PM EDT  
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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.

Half the world’s 20 worst performing currencies as of 3:54 p.m. in London were African, with Zambia’s kwacha falling the most globally and South Africa’s rand reaching a new low against the dollar. Yields on 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 Ltd., 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 3.7 percent weaker at 8.51, still a record low on a closing basis. Copper tumbled 1.7 percent to $4,970 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 Ltd.

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, surged 3.4 percent to 244.5 per dollar, the highest since March 25. One-month forwards surged 2.7 percent, the most since Feb. 10, to 212.5.
The Nigerian central bank’s spokesman, Ibrahim Mu’azu, didn’t answer Bloomberg’s calls to his mobile.

Nobody Spared

Oil importers weren’t spared the rout. Kenya’s shilling depreciated 0.3 percent to 103.7 per dollar, the lowest on a closing basis since Oct. 2011, while Uganda’s shilling fell 1.8 percent to a record 3,644 against the greenback.
“The oil importing countries should have at least been resilient,” Samir Gadio, the London-based head of Africa strategy at Standard Chartered Plc, said by phone. “But it seems that everything is selling off.”

Yields on a $1 billion Eurobond due in Aug. 2023 for Ghana, which exports gold and oil, climbed 38 basis points to 10.6 percent, the highest on a closing basis since Dec. 16. Rates on Nigeria’s $500 million of debt due in July 2023 spiked 41 basis points to 8.43 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 31 basis points to a record 9.93 percent.

Stocks also fell. Nigeria’s main index weakened 2.2 percent to 29,177.58, the lowest close since Feb. 18. Kenya’s benchmark index slid 1.9 percent, the most since Dec. 18 and extending its losing streak to nine days.
African markets may rally if the U.S. Federal Reserve decides not to increase its base rate on Sept. 17 for the first time almost a decade, according to Gadio. The risk of that has lead investors to pull money away from emerging markets.

“The only catalyst I see is a delayed hike with the Fed,” said Gadio. “Given what’s going on, the odds of a hike have probably declined. Any other positive surprise would have to come from China, but it’s difficult to see what that could be.”


http://www.bloomberg.com/news/articles/2015-08-24/african-assets-tumble-as-commodity-slump-hurts-bonds-currencies