The banking shares took a double knock on a weak rand, which has buckled over the trade war between the US and China, and fears that Moody’s is set to downgrade South Africa’s sovereign rating in November.
The key banks index is now nearly 20percent lower from a 52-week high, while the general retail index has plunged nearly 30percent during the period. Nedbank closed 2.11percent lower at R216.75. while Absa fell 2.14percent to R147.77, and Capitec slid 1.82percent to close at R1080 on the JSE yesterday.
The biggest bank by market capitalisation FirstRand was down 0.55percent at R57.90, and Standard Bankclosed 1percent lower at R168.68.
The country’s lenders recently reported subdued results pointing to weakness in the local economy.
Liam Hechter, fund manager at Anchor Capital said in a research note that company-specific factors were probably not as important as the bigger picture variables such as domestic economic growth, constructive economic policy, emerging market asset flows and the cost of money tied to global macro factors.
“So, why would we expect local banking shares to re-rate, especially considering that South Africa is heading into a possible sovereign downgrade against a very volatile global equity backdrop? We don’t have all the answers (SA bonds are cheap and could provide valuation support) but, on a risk-reward basis, we nevertheless believe that at the current levels, an attractive scenario is playing out,” Hechter said.
“We continue to favour FirstRand and Standard Bank, although we view the recent Absa results, especially from its domestic retail bank, as possibly signalling the start of a nice recovery after many years of under-performance for the group.”
Retailers also came under severe pressure in recent weeks, with the country’s biggest food and consumer goods group Shoprite down almost 22percent in the past 30 days. Their rival Pick * Pay has fallen nearly 13percent over the past month and Dis-Chem 5.67percent in the period.
Spar has slashed 8.9percent off its stock during the period, while Clicks has shed just over 6 percent.
Izak Odendaal of Old Mutual Wealth said the sustained margin squeeze of domestic-focused South African businesses, plus the overall negative sentiment surrounding the local economy saw several share prices fall to multi-year lows.
“Only a few large-cap rand hedge shares are keeping the overall JSE index up. Inflation expectations are usually slow to adapt, but they are adapting,” Odendaal said.
“Still, investors in the local bond market appear to be paying more attention to fiscal risks than inflation, which is a more important long-term driver.”