South Africa's rand ended 2010 near three-year highs and stocks booked gains for a second consecutive year, after 12 months in which investors favoured high-risk assets over underperforming developed markets. On Friday, Johannesburg's Top-40 index of blue chips ended 0.4 percent lower at 28,639.40 points, but up 14.6 percent for the year and a massive 260 percent for the decade.
The broader All-share index was down 0.28 percent at 32,118.89 points. The rand has gained over 10 percent this year, bringing gains since beginning of 2009 to above 30 percent. The currency recorded similar gains against the euro. By 1135 GMT, the rand was trading at 6.63 against the dollar, 0.3 percent softer than New York's Thursday close of 6.61. It hit a three-year high of 6.5975 on Wednesday.
Charts show the rand has been on a bullish trend since late July and is poised for further gains over the next few weeks, if it sustains levels below 6.65. "The risk is that the rand extends its gains well into 2011 those exposed to exports from South Africa will need to plan for the possibility that the rand extends its gains," said Tradition Analytics.
Domestic policymakers grappled with ways of curbing rand strength in 2010, and the new year will be no different. Easier monetary policy to boost fragile economies in developed markets has left global markets awash with investment cash seeking returns, and higher foreign inflows into emerging markets are seen continuing in 2011, albeit at a slower rate.
The central bank tried to curb rand gains in 2010 by quickening pace of reserves accumulation. Tradition Analytics said there is probably little the government can do to counter the currency's rise, short of adopting "fundamentally flawed policies from abroad".
South Africa rejected the idea of taxing foreign capital inflows into bonds, such as the one Brazil opted for. Inflows into the bond market have tripled to 61.0 billion rand in 2010 compared to last year, boosting local debt and pushing yields down by between 100 and 150 basis points across the curve.
On Friday, bonds ended on a firmer note, with the yield on the 2015 bond down one basis point to 7.32 percent and that on the 2026 note down nine basis points to 8.305 percent. The market expects the central bank to cut rates again, adding to 650 basis points worth of reductions since December 2008.
On the bourse, Anglo American was off 1.72 percent at 343 rand and rival BHP Billiton lost 1.59 percent to 265.45 rand. Grocery retailers were boosted after Business Day reported that the country's antitrust watchdog has cleared them of price collusion. Massmart was 0.48 percent higher at 146.70 rand and Shoprite added 0.35 percent to 99.65 rand.