Macroscope | Rand gives real a run for its money as most vulnerable emerging market currency

These are painful times for financial investors.

The sharp China-driven deterioration in market sentiment has resulted in the worst start to a year since the mid-1990s, with more than US$4 trillion wiped off the value of global equity markets last week.

Emerging market (EM) currencies have, together with the ailing commodity markets, borne the brunt of the declines in asset prices. The Russian rouble has dropped a further 4.8 per cent against the US dollar since the start of this year, while the Turkish lira and the Malaysian ringgit have fallen an additional 3.4 per cent and 1.8 per cent respectively.

Yet the EM currency that sticks out like a sore thumb in terms of its vulnerability to deteriorating market conditions is the South African rand.

Since January 4, the first trading day of the year, the rand has lost nearly 7 per cent against the US dollar. At one point on Monday it plummeted 9 per cent in what traders call a “flash crash” – a sharp and short-lived swing in the securities prices stemming from a dearth of liquidity in financial markets.

In a sign of the extent to which the rand has become more vulnerable of late, its decline since mid-October has made the Brazilian real – which for most of last year was the most unloved EM currency – look like a relatively stable currency. While the real has lost a further 3 per cent against the greenback, the rand has plummeted 28 per cent.