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Johannesburg – The rand turned softer against the dollar yesterday after South African Reserve Bank (Sarb) data showed only a slight improvement in net foreign exchange reserves during August.

The blue-chip Top 40 futures index was up 0.7 percent, suggesting the local bourse would open at least 316 points higher. The government bonds came under early pressure at the start of trade, with the yield for paper due in 2026 climbing 7 basis points to 8.635 percent.

By 08:52 the rand was down 0.5 percent at R13.9450/$ compared with its Friday close. The local unit turned south after Sarb data showed net gold and foreign exchange reserves ticked up only a bit to $41.244bn in August from $41.007bn in July.

The Reserve Bank has long admitted it does not have enough reserves to try and defend the rand, which has shed more than 12 percent this year against the dollar as investors expecting US interest rates to rise have dumped risky emerging markets.

On Saturday, governor Lesetja Kganyago said the sharp fall in the currency “is not necessarily a bad thing” and that it need not be a worry, to the extent that it was part of a global foreign exchange rebalancing.

The rand was likely to remain vulnerable to global news headlines yesterday, despite the Labour Day public holiday in the United States which would ordinarily take some pressure off markets, Standard Bank trader Warrick Butler said.

“Looking at the charts, things don’t look ready to turn around just yet. The weekly close above 13.50 last week means that more pain in likely in the rand before things get better,” Butler said.

Meanwhile, South African equities have marched ahead this year despite sluggish economic growth, with local investors scaling back their bond exposure in favour of shares that offer a hedge against a sharply weaker currency.

Central bank regulations limiting local investors to taking only 25 percent of their assets offshore have prevented a mad rush out of South Africa that might have ensued with the rand’s nearly 20 percent fall against the dollar this year.

But asset managers are now juggling their money around more actively than they have done in the past to maximise returns, and the local bourse has benefited the most. “It’s been a good news story for the equity market and a bad news story for the bonds,” said Mike Keenan, a strategist at Barclays Africa.

“It’s a way of protecting your investment against rand depreciation, and that has actually seen the JSE doing very well in an environment where growth is still weak and the central bank is hiking rates.

The rush to equities has boosted the likes of Naspers, Sasol, Richemont, which have a big weighting on the share index and generate most of their revenue from abroad, meaning a weaker rand works in their favour. — Sapa