China accused the US of contributing to public hysteria over the deadly novel coronavirus as the struggle to contain the illness adds further strain to diplomatic relations. Picture: Xinhua/Xiong Qi/IANS
China accused the US of contributing to public hysteria over the deadly novel coronavirus as the struggle to contain the illness adds further strain to diplomatic relations. Picture: Xinhua/Xiong Qi/IANS

Commodities take a beating as uncertainties grow over coronavirus

By Siphelele Dludla Time of article published Feb 4, 2020

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JOHANNESBURG - Commodities took a beating on the JSE yesterday as Chinese stocks slid after the Chinese stock market opened following the extension of the Lunar New Year on the escalating uncertainties over the coronavirus.

The mining index fell by 1.39percent, with gold and platinum indices easing 2.52percent and 0.88percent, respectively.

The resources declined 1.30percent.

Sibanye-Stillwater, Harmony Gold, South32, Exxaro Resources, Anglo Platinum, and African Rainbow Minerals were among the bottom 10 of top 100 companies on the JSE yesterday.

The FTSE/JSE Africa All Shares Index also fell 0.45percent to 55828points.

ActivTrades chief analyst Carlo Alberto de Casa said the bullion took a heat on the temporary slowing of the risk-off scenario as stock markets looked to rebound.

De Casa said the strengthening of the dollar against the rand further reduced support for the yellow metal.

“Despite this, the correction so far is moderate and prices are still above the first support level of $1570 (R23506), ready for another rebound at the very first correction of stock markets,” De Casa said.

China, the world’s largest consumer of commodities and resources, is battling to recover from the deadly virus that has claimed more than 360 lives and negatively impacted the economy.

The outbreak has threatened the global economy which is projected to slow down this year and grow between 2.5 and 3.6percent in 2020.

Stephá* Engelbrecht, a fund manager and investment analyst at Anchor Capital, said the country's already stuttering economy would struggle even more on the slowdown in the global output.

“In addition, a worse-than-expected spread of the virus and a longer-lasting impact could fuel risk-aversion among international investors, which would mean that investor appetite for emerging markets and other riskier assets will be diminished significantly,” Engelbrecht said.

Coronavirus has affected tourism and trade around the world as more countries are banning travellers from China, and airlines are suspending their flights to and from the country.

Senior research analyst at FXTM, Lukman Otunuga, said domestic trade could be affected by the upheaval in China’s market as the country is South Africa’s largest export partner in Asia.

“Market sentiment will remain influenced by coronavirus fears and impacts it may have on the global economy,” Otunuga said.

“Concerns over the virus outbreak shaving a chunk out of China’s GDP may hit the South African economy in terms of trade.”

The panic surrounding the outbreak also resulted in the rand breaching the R15 to the dollar barrier on Friday for the first time in 2020 as a risk-off emerging market sell-off sentiment continued.

The rand has lost more than 5percent against the greenback since the beginning of the year.

However, it recovered slightly yesterday, trading at R14.89 against the dollar at 5pm.

Investec chief economist Annabel Bishop said that the impact of coronavirus could prove to be more severe than markets anticipate.

Bishop said there could be further declines in the rand, given the probable downgrades with investors likely to dump it for the greenback.

“The rand risks approaching, and exceeding, R16.00/$ this quarter if South Africa looks increasingly likely to see a Moody’s downgrade, given that the domestic currency has already reached a low base on the back of the impact from the coronavirus on risky assets,” she said.

BUSINESS REPORT 

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