Load Shedding causing Rand slump

Load Shedding causing Rand slump

It is no secret that South Africa is currently experiencing record-high levels of Load Shedding. There are multiple energy intense industries that support the economy hence Load Shedding has adverse effects on a country's economy. Today we will discuss the situation in South Africa and find ways to benefit from it.

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Government's repeated failure to increase Eskom's power capacity

The government of South Africa has repeatedly failed to assign the right leaders to lead Eskom out of the massive debt that it has collected. Because the debt collected is government guaranteed, the debt essentially has become the government's problem as the entity has been losing power capacity and does not accumulate enough finance from its activities to generate more income.

So as the state of Eskom gets worse, so does the deep hole of guaranteed debt that the government now has to deal with. This in turn affects the future investment outlook for South Africa, as investors look at that debt as bad debt which discourages them to invest in South African bonds. This in turn affects the outlook of the rand hence why we see it fall in value.

If you look at the USDZAR, you can clearly see that the rand has recently broken past the R17 level, a level we have been trading comfortably under for a couple of months. This signifies a change in trader sediments as the President of South Africa claims to handle the situation. The situation is made worse by the fact that there is not enough diesel to keep the back up power generators on. If they run out (which they will) it will need to purchase more (on top of the money needed to repair some facilities), which will further increase the guaranteed debt it has and further decrease the economic outlook of the government which will further shift investor sediment.

How to trade this couple of weeks

Until new development is made on the energy crisis we can expect this to affect the rand negatively ( as it always does). At this point we should start looking for shorting opportunities for the rand.