As the world’s most powerful economy, what happens in the US has a big impact on markets around the world. In fact, what happens in South Africa’s markets is often more about what’s going on in the US than what is appearing in local headlines.
In this article, we look at the three particular areas where the US has a real and meaningful impact on South African investors – the rand, South African bonds, and the local stock market.
“The markets are like weather; you may not like it, but you have to bear it.” (Rakesh Jhunjhunwala)
South African investors don’t need to follow every twist in American politics or economics, but you can’t ignore them either. The world’s biggest economy casts a long shadow, and what happens in the US can ripple across global markets, including our own.
Let’s take a look at three particularly important ways this plays out…
1. It's not really about the rand
The rand is notoriously volatile, but most of this has nothing to do with South Africa. It stems from how investors around the world feel about the US dollar. While we may be obsessed with local headlines, the people who actually move currency markets – traders in places like London and New York – aren’t reading News24. They are making decisions based on US and global factors.
When there’s a lot of uncertainty, for example, global investors seek safety. That almost always means moving money into US dollars and out of riskier emerging market currencies, like the rand.
When we talk about the rand “weakening” or “strengthening”, that’s usually the wrong way of thinking about it. In most cases, it’s not the rand that is doing the moving — it’s the dollar. The dollar is the world’s reserve currency, and it plays an outsized role in global trade and finance. When the dollar strengthens, almost every other currency weakens in comparison.
The reality is that what happens to the rand from day to day tends to have little to do with local conditions, and much more to do with how the dollar is behaving in global markets. For example, if the US Federal Reserve signals that interest rates will stay higher for longer, investors may pull funds out of emerging markets. This weakens the rand – even if nothing has changed in the South African economy.
2. Building a bond yield
Investors everywhere treat US government bonds as the benchmark for interest rates around the world. When investors think about how much yield they need to receive to be comfortable investing in South African bonds, their starting point is to look at how much higher that yield is than US bonds to compensate them for the extra risk they are taking.
In practical terms, this makes the US bond yield a component of the South African bond yield. The additional risks of investing here such as inflation, currency volatility, and fiscal uncertainty are added on top of that. But the starting point is what the market is offering in the US.
This means that when US yields move up or down, South African bond yields will respond accordingly. This repricing has nothing to do with local fundamentals. It’s all about what is happening in the US, such as higher inflation or higher levels of perceived risk. But it still has real consequences for South African investors, as well as for the government’s debt servicing costs and interest rates across the local economy.
3. Correlation and contagion in the stock market
While the JSE will always be influenced by local economic conditions, it’s also heavily tied to what happens on Wall Street. Several large stocks listed on the JSE – such as Naspers/Prosus, Richemont, and Anglo American – are global businesses that react more to US or international sentiment than to South African news.
When US equity markets fall sharply, you’ll often see local equities drop as well, even if there’s no change in South African fundamentals. This is partly psychological (panic sells are contagious), but also practical: global asset managers may rebalance portfolios or redeem emerging market holdings to cover US losses.
On the upside, positive news in the US market can also translate into gains on the JSE. This was illustrated very recently when the cooling of the tariff war boosted sentiment in the US market, and local stocks followed suit.
The takeaways
You can’t control what happens in the US, but you can be aware of how it may affect your portfolio. A well-diversified investment strategy should already account for these global linkages. That includes understanding currency risk, maintaining appropriate exposure to bonds and equities, and having a long-term plan that can ride out the noise from abroad.
Working with a financial advisor can also help you interpret the global headlines in a way that’s relevant to your personal goals, and avoid overreacting to market movements that are more about the US than they are about you.
To discuss your portfolio, speak to us.
Disclaimer – *The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
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