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SocGen Doubles Down on Ruble-Rand Trade That Hit Target Early

SocGen Doubles Down on Ruble-Rand Trade That Hit Target Early

(Bloomberg) -- It was a trade that was meant to hit its target in three to six months. It took less than two weeks.

Societe Generale SA recommended on March 29 shorting the Russian ruble against the rand, predicting a 7.5 percent appreciation in the South African currency to 5.2056 rubles. The Paris-based lender cited a “divergence in political narratives,” with South Africa benefiting from new President Cyril Ramaphosa’s reforms and Russia suffering from tensions with the U.S. and Europe.

But Washington’s new sanctions against Russian oligarchs seen as close to President Vladimir Putin late on Friday accelerated that divergence. The ruble has slumped 7.7 percent against the rand this week -- almost as much as its loss versus the dollar -- to its weakest level since August 2015.

SocGen doubled down on Tuesday, revising its target to 5.5355 and creating a stop-loss, or point at which investors end a loss-making trade, of 5.1329.

SocGen Doubles Down on Ruble-Rand Trade That Hit Target Early

Russian assets will probably be under pressure for a while yet thanks to over-crowded long positions among foreign investors and the potential for Western countries to take further measures against Moscow over its involvement in Syria, according to Phoenix Kalen, an emerging-markets strategist at SocGen.

“Although adverse global sentiment impairs the rand as an emerging market bellwether currency, in this case, the pain is disproportionately on the ruble,” she said. “So we believe this relative value trade may have further room to run.”

Some other banks have had to go the other way. Morgan Stanley ended a long ruble-yen trade on Monday that it entered on March 26. Russia’s currency has depreciated 8 percent against Japan’s these week and is now at its weakest in almost 18 months.

To contact the reporter on this story: Paul Wallace in Lagos at pwallace25@bloomberg.net.

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Robert Brand, Vernon Wessels

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