Emerging Markets Reel as Rand and JSE Take a Hit Amid Global Uncertainty

The past week has been nothing short of disastrous for emerging markets, with the rand and JSE taking significant hits. This downturn is largely attributed to the escalating tensions between the US and Iran, which has led to a surge in oil prices and a subsequent strengthening of the dollar. The MSCI EM currency gauge has dropped by 2% over the week, while the comparable gauge for EM equities has fallen by over 7%. The JSE FTSE All-Share index has lost more than 9%, with the rand down almost 5% over the past week, trading at its worst level since end-2024. The recent US data showing a decrease in nonfarm payrolls has raised doubts about the health of the labor market, potentially bolstering the case for Federal Reserve rate cuts. However, experts believe that this relief will be short-lived, as the ongoing conflict in the Middle East continues to drive up oil and gas prices, leading to a potential global inflationary shock. The situation is further complicated by the dispute between Hungary and Ukraine over a pipeline outage, which has hit Hungary’s forint particularly hard. As volatility soars, monetary authorities are taking actions to defend local currencies, with Turkey spending a significant portion of its foreign-currency reserves to keep the lira stable. The Philippines central bank has also expressed concerns over the rising oil prices, which could reach $100 per barrel. The current situation has led to a surge in emerging-market currency volatility, with the JPMorgan EM FX volatility index rising above that of the Group-of-Seven peers. As the global economy teeters on the brink of uncertainty, investors are trimming their risk and waiting for hints of stabilization before re-entering the market. The impact of the current situation on South Africa, in particular, is significant, with the rand’s slump and rising oil prices set to affect motorists and the broader economy. In conclusion, the emerging markets are facing a perfect storm of challenges, from the US-Iran conflict to the rising oil prices and currency volatility. As the situation continues to unfold, it remains to be seen how the markets will respond and what measures will be taken to mitigate the effects of this uncertainty.