(Bloomberg) -- The rand fell as much as 1.2 percent to head for its biggest weekly retreat this month as increased risk aversion among global investors and a possible reweighting of South Africa in a JPMorgan bond index sparked concern foreigners may sell the country's debt.
At 10:21 a.m. in Johannesburg, the rand dropped 0.4 percent to 13.9520 per dollar, trimming its quarterly and monthly gain to 5.2 percent. The government's 10-year rand-denominated bond weakened for a third day, with yields climbing six basis points to 8.73 percent, the highest on a closing basis since Sept. 9. Emerging-market assets declined amid anxiety over the wider implications of Deutsche Bank AG's capital troubles.
“Some rand weakness is justified given the Deutsche Bank-inspired global risk-off environment,” John Cairns, strategist at Rand Merchant Bank in Johannesburg, said in a note. “Emerging markets might have been impacted by the reweighting in the JPMorgan Global Bond Index. As we understand it, South Africa's weight will drop 0.45 basis point to 9.7 percent today, implying around $1 billion in outflows.”
About 10 hedge funds that do business with Deutsche Bank have reduced their financial exposure to Germany's largest lender, Bloomberg News reported. The dollar was boosted Thursday by economic data that strengthened the case for the U.S. Federal Reserve to increase interest rates, trimming appetite for riskier assets.
To read about Deutsche Bank hedge-fund clients reducing exposure, click here
The rand is still set to be the biggest gainer in September among more than 140 world currencies tracked by Bloomberg. The rand is also outperforming global currencies against the euro and the pound.
Foreigners were were net sellers of 1.1 billion rand ($79 million) of South African bonds on Thursday and sold a net 6.8 billion rand of shares, offloading local stocks for an eighth day, data from the Johannesburg stock exchange shows.
To contact the reporter on this story: Xola Potelwa in Johannesburg at xpotelwa@bloomberg.net. To contact the editors responsible for this story: Robert Brand at rbrand9@bloomberg.net, John Viljoen, Ana Monteiro
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