Rand weakness: The drivers and potential outcomes John Cairns, RMB - PowerPoint PPT Presentation

Rand weakness: The drivers and potential outcomes John Cairns, RMB Currency Strategist May 2013, conference call An Authorised Financial Services Provider Strictly Private and Confidential

Rand underperformance USD/ZAR and other high-yielding currencies Currency changes in the past three years 50% Index (Jan-08 = 100) 140 2013 ZAR weakness 40% 2012 High-yielding currencies 2011 30% T otal 130 20% 120 10% 110 0% strength -10% 100 -20% 90 2010 2011 2012 2013 Source: RMB Global Markets, I-Net Bridge, Bloomberg, Reuters Strictly Private and Confidential 2

It’s only the rand that is struggling SA CDS spreads JSE All Share index 50,000 600 500 40,000 400 30,000 300 20,000 200 10,000 100 0 0 2000 2002 2004 2006 2008 2010 2012 2002 2004 2006 2008 2010 2012 Source: RMB Global Markets, I-Net Bridge, Bloomberg, Reuters Strictly Private and Confidential 3

Two structural negatives Commodity export price index The current account deficit % of GDP 300 2.5 250 0.0 200 -2.5 150 -5.0 100 -7.5 50 -10.0 0 2000 2005 2010 1990 1995 2000 2005 2010 Source: RMB Global Markets, I-Net Bridge, Bloomberg, Reuters Strictly Private and Confidential 4

How weak is the rand really? NEER: Deviations from fair value USD/ZAR and fair value 14.00 % Actual Fair value Overvalued 20 12.00 10 10.00 0 -10 8.00 -20 6.00 Undervalued -30 1990 1995 2000 2005 2010 4.00 2000 2002 2004 2006 2008 2010 2012 Source: RMB Global Markets, I-Net Bridge, Bloomberg, Reuters Strictly Private and Confidential 5

How the flows stack up Foreign holdings of local bonds Net visible flows Rbn Rbn Visible flows (trade + portfolio) 375 30.0 5.0 USD/ZAR (RHS reversed) 300 6.0 15.0 7.0 225 0.0 8.0 150 -15.0 9.0 75 -30.0 10.0 0 -45.0 11.0 2000 2002 2004 2006 2008 2010 2012 2006 2008 2010 2012 Source: RMB Global Markets, I-Net Bridge, Bloomberg, Reuters Strictly Private and Confidential 6

Rand scenarios Our official forecast USD/ZAR and probability bands 12.00 15.00 Actual Actual Forecast 95% confidence band Forward 66% confidence band 10.50 12.00 9.00 9.00 7.50 6.00 6.00 3.00 4.50 0.00 2005 2007 2009 2011 2013 2015 2000 2002 2004 2006 2008 2010 2012 2014 Source: RMB Global Markets, I-Net Bridge, Reuters Strictly Private and Confidential 7

Risk distribution around the core view The probability distribution and implications Core view Mild capital slowdown Capital standstill USD/ZAR 13.00 10.00 9.00 0.5% Growth -1.1% 2.3% 3.3% 2014 forecasts Repo (eop) 9.5% 6.5% 4.5% 8.0% 8 Source: RMB Global Markets Strictly Private and Confidential

Disclaimer Strictly Private & Confidential This presentation has been prepared by FirstRand Bank Limited, acting through Rand Merchant Bank (“RMB”). The information contained in this presentation is confidential and intended solely for the use of the intended recipient. This presentation may contain information proprietary to RMB and accordingly may not be reproduced, acted upon or disseminated in whole or in part without RMB’s prior written consent. By attending this presentation, the intended recipient undertakes to keep the information contained in the presentation confidential and not to do any act or allow same to be done on his behalf which is in breach of the above mentioned prohibition. This presentation contains information which has not been independently verified by RMB. RMB and its directors, officers, employees and agents make no representation and give no warranty with respect to, and assume no responsibility for: the correctness, accuracy and completeness or otherwise of the information contained in this presentation; or the correctness or otherwise of the Advisers’ conclusions based on such information. Any liability of whatsoever nature and howsoever arising on the part of RMB, their directors, officers, employees and agents relating to the contents of this presentation is hereby expressly disclaimed. This presentation is intended for discussion purposes only and does not represent a commitment, proposal, recommendation, offer open for acceptance or agreement to enter into a transaction. Any transaction is subject to the agreement of final terms to be set out in a separate written agreement. The decision to enter into any transaction and to assume the risks associated with the transaction rests solely with the intended recipient. July 2012 Strictly Private and Confidential 9