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The art of estimation as being worthless’. That’s the definition I’ve been given for the title word of this article. Normally it’s a cheap bar trick to bang this word out, now it has a place. In the present global economic climate estimation is worthless and everything is, at best, estimation or guesswork. There is a severe shortage of certainty around. Alastair Constance writes...

The rand’s price action against other currencies has exemplified the fear and panic in the global markets right now. As I sit and write this we have just traded up to slightly above 19.00 against sterling, almost touched 12.00 against the dollar and breached 15.00 briefly against the euro.

Fundamentally what is the reason for this huge rand sell-off? Some would argue none, but then there comes that long word again. What is certain is that the ‘hot money’ that I’ve talked about in previous months is flying out of South Africa and the famed ‘carry trade’ is being savagely unwound. Huge sums of money that had been invested in South Africa by international companies, funds and individuals are leaving South Africa contributing to the extreme price movements.

According to Merril Lynch, South Africa's rand and the Ukrainian hryvnia have joined Iceland's krona in a “currency crisis”. A gentleman from Goldman Sachs reckons that the rand is now around 41 percent undervalued. What we all really want to know is where the low is and when the rand will bounce back, if at all?

Bear in mind that what is happening to the rand is also happening to other emerging market currencies, in most cases to a lesser extent though. Falling commodity prices, global risk aversion and US dollar strength are all weighing on the rand.

These factors may persist and keep the rand weak and even cause further selling. It feels a little like the end of 2001 when we had that legendary rand spike. The difference this time round is that western economies are facing a serious downturn and some are already in recession. That makes the argument for a softer rand more convincing and might prolong the weak pricing.

On the flip-side there are sound reasons for the rand to bounce back. For one thing it is just too cheap at these levels. Nothing has fundamentally changed in South Africa. The economy is fairly strong despite the wide current account deficit and inflation is expected to come down in the coming months. Though politics is again on the front pages the economy looks fairly buoyant.

It is my opinion that we’ll plateau around the levels that we’re at, perhaps trade a little lower (rates higher) against the majors and slowly correct back to the more sensible levels of a couple of months ago.

First though the fear in the system needs to work itself out, equities need to stabilise and emerging market risk needs to be re-evaluated. Central banks, the IMF and governments around the world have done a large amount to stabilise the markets and when traction is gained again the rand should

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