FN Arena News
Latest News
Feature Stories
Small Caps
Weekly Insights
Weekly PDF
Research Reports


Email Us

Member Login


African Currencies Might Benefit From Improving Commodities
FNArena News - February 03 2009

By Chris Shaw

When commentators talk of commodity currencies the Australian, New Zealand and Canadian dollars are traditionally at the forefront of investor thinking, but as Standard Chartered points out African currencies are also viewed by the market as currencies closely linked to commodity prices given Africa's exports are heavily weighted to primary products.

United Nations Conference on Trade and Development data show exports of ores, metals and fuel products accounted for 74% of all African exports in 2006 against just 18% of exports being of manufactured goods. This would tend to support such a view of the African currency group.

The reality though is somewhat of a less direct relationship as on the group's analysis high frequency correlation data show few obvious links but monthly frequency data generate a stronger correlation. This leads Standard Chartered to suggest commodity prices have little use as a short-term trading signal for the African currency group, but they do offer a better signal for long-term investors or corporates looking to hedge exposure.

The data show the relationship varies from currency to currency depending on the export mix of the nation in question, with those nations involved in the export of oil, copper or gold generally showing a higher level of currency correlation to commodity prices.

In Standard Chartered's view, the commodity price outlook is one of gradual improvement through 2009 and 2010, this despite some short-term downside risks for the likes of oil and copper. Assuming such an outcome, the group is generally encouraged on the outlook for African currencies, though it suggests it could take some time for conditions to turn favourable enough for portfolio and foreign direct investment flows to return to levels that would prompt a broad-based revival in currencies in the region.

Having a relatively positive view on the outlook for oil prices in particular leads the group to suggest improvement in the oil market may generate some stability in the oil-linked currencies in the region, which would be good news for the likes of the Nigerian naira.

Our archive tells no lies. FNArena warned its readers well before the price of crude oil peaked in 2008 the speculator bubble would deflate with devastating consequences for those holding oil company shares. In August we warned the most severe correction in modern history was forthcoming for natural resources. In 2007 we warned the problem with US subprime mortgages would prove much bigger than experts and media were anticipating (among other things).

FNArena is showing the true value of truly independent financial analysis and reporting. Our daily news reports can be trialed at no cost and with no obligations at www.fnarena.com. Simply sign up and see it for yourself.

Subscribers and trialists should read our terms and conditions, available on the website.

All material published by FNArena is the copyright of the publisher, unless otherwise stated. Reproduction in whole or in part is not permitted without written permission of the publisher.

The content of this information does in no way reflect the opinions of FNArena, or of its journalists. In fact we don't have any opinion about the stock market, its value, future direction or individual shares. FNArena solely reports about what the main experts in the market note, believe and comment on. By doing so we believe we provide intelligent investors with a valuable tool that helps them in making up their own minds, reading market trends and getting a feel for what is happening beneath the surface. This document is provided for informational purposes only. It does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. FNArena employs very experienced journalists who base their work on information believed to be reliable and accurate, though no guarantee is given that the daily report is accurate or complete. Investors should contact their personal adviser before making any investment decision.
© News Network 2017. All Rights Reserved. No portion of this website may be reproduced, copied or in any way re-used without written permission from News Network. All subscribers should read our terms and conditions.