Emerging markets - the more reliable ones, at any rate - are coming back in favour... shares are still well overvalued in Europe and the US, and places like South Africa are looking rather better bets

London-based trader

The rand has closed lower on only two days during the last three weeks.

Analysts attribute the rand's rally to a combination of a slower-than-expected economic recovery in the US, and an improved performance by South Africa.

The dollar has softened in recent weeks as investors' confidence in a quick rebound in the US has dissipated.

The dollar weakened further last week when US treasury secretary Paul O'Neill told Senators that intervention in the currency markets was doomed to failure.

But the greenback's slide is also helping other countries with strong commodity export industries such as New Zealand and Australia, as gold prices - to take one example - are at a two-year high.

Revival

For anyone concerned about South Africa's currency, the past year or so has been a nightmare.

For most of the first eight months of 2001, the rand drifted gently from 8 rand to the dollar to about 9, but not quickly enough to raise the alarm.

Then, from November onwards, it plummeted, hitting rock-bottom at 13.48 rand to the dollar on 20 December.

That spike did not last, but the slump was enough to tarnish the performance of South African companies who have to import materials.

It also forced the Central Bank to hike interest rates by two full percentage points in the hope of damping down the resulting inflation.

Return to favour

Part of the problem late last year was the impending crisis in Zimbabwe, as government and opposition squared up for what looked like the roughest - and tightest - election in years.

The election is over, praised by its neighbours but derided elsewhere as a fix for President Robert Mugabe, and Zimbabwe's economic travails are just getting worse.

But that is occupying investors' minds rather less, as they focus on signs of a weak US economy.

"Emerging markets - the more reliable ones, at any rate - are coming back in favour," one London-based trader told BBC News Online

"Shares are still well overvalued in Europe and the US, and places like South Africa are looking rather better bets."

Solutions

A renewed determination in South Africa to confront the HIV/Aids pandemic which is decimating the workforce is also boosting sentiment.

And recent economic data, such as a strong trade surplus, have also proved reassuring.

The ongoing public inquiry into why the rand sank so far and so fast may also be propping up the currency.

While no evidence has emerged to support the wilder allegations of misdeeds by foreign traders, the inquiry may nonetheless be damping down some of the more extreme speculative activity.