Rand may hit R20.50 to the dollar in 2024 – presenting an opportunity for investors

The rand will remain under severe pressure in 2024, fluctuating between R18.50 and R20.50 to the dollar and possibly even worse if South Africa’s structural issues deteriorate further. 

This is feedback from Citadel’s chief economist, Maarten Ackerman, who said the outlook for 2024 is very similar to that of 2023 in his investment outlook. 

In 2023, Citadel Wealth Management said South Africa should expect strong headwinds for risky assets, such as the rand, amidst the themes of peak inflation, peak interest rates and the potential for a global recession.

The picture hasn’t changed much this year despite a few additional local and global risk factors.

Ackerman highlighted that South Africa faced significant challenges last year, including the poor performance of state-owned enterprises like Eskom and Transnet, and this year, it will likely stay the same, with further uncertainty caused by the national elections.

This will lead the rand to continue to weaken versus the US dollar in 2024, as the only way the currency can strengthen is if South Africa can address its structural issues. 

“Our medium-term view for the rand is that it will fluctuate between R18.50/$ and R20.50/$ with a lot of volatility,” Ackerman said. 

“It may even go north of R20.50/$ if the global risk-off environment gains traction during the first half of 2024.”

However, this does lead to an opportunity for South African investors with the continued weakness of the rand boosting the returns of offshore investments. 

For example, if the rand slips 8% against the dollar, any dollar-exposed portfolios receive an 8% boost on top of their returns when converted to the rand.

This will boost already strong returns from offshore markets, particularly the US market. 

Citadel chief economist Maarten Ackerman

Ackerman cautioned against being overly optimistic about the performance of the US equity market in 2024 as it is unlikely that it will be able to repeat its strong performance from 2023. 

“We must remember that many of the returns seen in 2023 were driven by the theme of artificial intelligence (AI). Here we talk about the magnificent seven companies: Apple, Microsoft, Alphabet (owner of Google), Amazon, Nvidia, Tesla and Meta,” Ackerman said. 

These companies were responsible for most returns seen on the S&P 500 index last year. If these seven companies were excluded, equity performance for 2023 would look very different. 

“We believe the momentum of the AI theme is going to soften in 2024, removing the tailwinds that it offers. We are anticipating low single-digit returns from both the local and global equity markets this year,” he said.

Thus, “we believe that equity will tread water for most of this year. Equity should form part of an investor’s long-term strategy with a weighting to defensive companies”.

He urged investors to remember that time in the market always beats timing the market, and equity will inherently be volatile in the short term but will perform well over the long term.