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South African Rand Falls to Record Lows

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Aug. 31 2015, Published 2:55 p.m. ET

Chinese slowdown pushes the rand lower

The South African rand has been trading on a weak note after hitting a record low against the US dollar. Major selling was seen in the currency after the yuan devaluation crisis. The sentiment was intensified by the fact that China is South Africa’s biggest trading partner. A slowdown will push the South African economy lower. If the concerns continue, the rand might depreciate more against the US dollar.

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Second quarter contraction underscores the economic slowdown

An unexpected fall in the GDP (gross domestic product) in the second quarter for South Africa underscored the economy’s problem. The economy contracted by -1.30% in the second quarter—compared to a rise of 1.30% in the previous quarter. Analysts had anticipated the the GDP would rise by 0.50%. The economy is facing huge unemployment problems along with huge power cuts. This is affecting the revenue driving segments. There was a slowdown across the manufacturing, mining, and agricultural sectors. This raised concerns of an impending recession in Africa’s largest economy. A lack of proper investments and governance issues have been plaguing the economy.

Impact on the market

The iShares MSCI South Africa ETF (EZA) rose by 0.95% on August 25, 2015.

The mining ADRs (American Depository Receipts) were trading on a negative note. AngloGold Ashanti (AU) fell by -7.23% while Sibanye Gold (SBGL) fell by -2.18%. Harmony Gold (HMY) and Gold Fields (GFI) also closed negatively at -7.14% and -11.60%, respectively.

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