Strategy: politics, ratings and global macro economic environment

Executive Summary

The purpose of this strategy note is to highlight the possible scenarios for the South African rand over the next three to six months.

• We believe three factors will drive the local currency and bond performance:

1. The 54th ANC National Conference: 16-20th December 2017
2. The ratings decisions by the international rating agencies: 24th November 2017
3. The global macroeconomic environment: On-going

• We believe that the international environment, which was a tailwind for SA financial markets throughout 2017, is likely to become a headwind for SA financial markets towards the end of 2017 and into 2018.

Levels to watch out for on the USD/ZAR and R186:

1. Positive ANC conference, no downgrade, positive global macro = R13.20/8.60%
2. Inconclusive ANC conference, downgrade by one agency, stable global macro = R13.80-14.50 and 8.98%-9.50%
3. Negative ANC conference, downgrades, negative global macro = R17.00/10.00%

• We believe that the outlook for the currency and rates is skewed to the downside, with credit rating downgrades (base case scenario) by 1H18 and the global macro-environment likely to deteriorate, offsetting any potential positive outcome from the ANC’s 54^th National Conference.