South African markets slide as Middle East tension escalate, dollar firms

South Africa’s rand, stocks and government bonds weakened on Friday as investors fled to safe-haven assets like the U.S. dollar amid escalating tensions in the Middle East. The conflict between U.S.-Israel and Iran entered a seventh day, showing no signs of slowing down as Israel carried out heavy strikes on Hezbollah-controlled areas of Beirut on Friday, attacking infrastructure in Tehran, while Iran struck parts of Tel Aviv.

At 1347 GMT the rand traded at 16.72 against the dollar, 0.4% weaker than Thursday’s close, in line with most emerging market peers. The greenback was up about 0.2% against a basket of currencies. “Like many emerging market currencies, the rand has been weighed down by rising global risk aversion and higher oil prices, which are particularly negative for South Africa as a net energy importer,” said Andre Cilliers, currency strategist at TreasuryONE.

Cilliers added that the local unit will likely trade within a 16.40 to 16.75 per dollar range in the near term as markets await further clarity on both the geopolitical situation and U.S. economic data. On the Johannesburg Stock Exchange, the Top-40 index was down 2%.

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South Africa’s benchmark 2035 government bond weakened sharply, with the yield rising 19.5 basis points to 8.435%. Next week, domestically focused investors will look to the country’s statistics agency’s release of GDP results, mining and manufacturing data for clues on the health of the continent’s most industrialised economy.

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