After hitting a record high of 35 743 points on Thursday, the JSE all share index dipped on Friday to end at 35 547. The rand also softened from R8.23 to the dollar on Thursday to R8.34 at 5pm on Friday.
Nedbank Capital head of strategic research Ian Cruickshanks said the weaker performance was due to a number of factors, including weak commodity prices.
However, he said the rand was the worst-performing emerging market currency on the day, possibly as a result of the bloodshed at Lonmin’s Marikana operation.
While investors did not react dramatically to last week’s events, Cruickshanks warned that “a fright of the proportions seen in the 1970s and 1980s” could be disastrous for investment. Under the pre-1994 apartheid regime South Africa was starved of capital, due to both boycotts and investor aversion to local risks.
Political events and violent protests routinely sent the rand tumbling. It took more than eight years under democracy before the rand became a two-way bet.
The scenes at Marikana last week evoked memories of anti-apartheid protests that ended in bloodshed. And they prompted economists to express concern at the potential damage to investor perceptions. Because of the low domestic savings rate the economy cannot grow without access to foreign capital.
Cruickshanks said the impact on the market would be cumulative if the situation continued.
Renaissance Capital South Africa economist Elna Moolman said: “The market is starting to pay more attention to the Lonmin events. Investors are generally concerned about some of the labour market dynamics in South Africa, including pay increases that exceed productivity gains and widespread and regular strikes. While this is a specific localised event, it is tarnishing South Africa’s image abroad.”
Investec group economist Annabel Bishop warned that South Africa’s attractiveness as a foreign direct investment (FDI) destination had been damaged. “South Africa desperately needs FDI to create jobs, increase growth and so raise living standards. Instead, the escalation of violence into the tragedy at Lonmin has increased the level of uncertainty that businesses are facing. Companies, foreign or local, need to be able to price risk in order to do business.”
She said it was up to the government to decrease uncertainty “to stimulate investment, both locally and from foreigners, and create firm leadership in an environment of improved property rights, regulatory efficiency, reduced state intervention and open markets. The international press coverage of the Lonmin tragedy talks instead to repression, a perception [the] government will want to urgently correct.”