Appetite for emerging markets lifts rand and equities
More and smaller, maybe unnoticeable, favourable geopolitical and economic indicator changes occurred that seemed to turn the tide of negative sentiment.
The turnaround in the South African business confidence index in September to 92.4 up from the 89.1 level in August gave some impetus towards an improvement in the economic climate.
Although the August mining (-3.8percent) and manufacturing (-1.8percent) production data were disappointing, the seasonal adjusted quarter-on-quarter numbers started to show improvement, an indication that the South African economy may show a positive growth rate during the third quarter.
The more important domestic event of the week was the first meeting of the newly established Presidential Economic Advisory Council chaired by President Cyril Ramaphosa on Wednesday.
The council outlined the government’s economic priorities and interventions in support of the proposed new economic strategy of the Department of Finance announced by Finance Minister Tito Mboweni last month.
The President announced that the government’s priorities and interventions would include a focus on tourism, investments and the outlook for the state-owned enterprises.
On the global front, more and more optimism started to emerge that the trade war between the US and China may be nearing an end.
US President Donald Trump on Thursday said that trade talks between his country and China were going well and should be wrapping up soon. At the same time the odds of a rate cut by the US Federal Reserve late in October have climbed to 90percent. These two movements led to US stocks and government bond yields soaring during the latter part of last week as investors started to sell gold and move into more risky assets.
Meanwhile, both the domestic optimism and global appetite for emerging markets boosted the rand and equity prices on the JSE since last Thursday. The all share index recovered most of its losses since the beginning of the month as the index climbed by 1543 points, or 2.9percent, last week.
The resources 10 index gained 5.4percent, while the financial 15 index shot up by 3.3percent and the industrial 15 index gained 1.2percent.
The rand exchange rate started to recover sharply. During last week the local currency had improved against the dollar from R15.27 last Wednesday to R14.79 at 5pm on Friday.
Against the euro, the currency had appreciated by 42 cents, or 2.5 percent, since last Wednesday, to R16.33 at 5pm on Friday.
Chris Harmse: Chief economist Rebalance Fund Managers.