Coronavirus fears infect the JSE
The FTSE/JSE All Share Index fell 2.37percent to a six-week low as risk-averse investors fled to safer options, such as bonds and gold.
The rand eased during earlier trade, before parring losses to R14.5730 against the dollar by 5pm.
Analysts pointed to the JSE’s high exposure to China as the reason for the fall, with basic materials accounting for more than 30percent of the JSE’s main index.
JSE heavyweights such as Naspers, which owns nearly 10percent of China’s Tencent, its unit Prosus, and luxury brands group Richemont push the weighting of stocks sensitive to events in China beyond 55percent.
The coronavirus has unnerved markets across the world.
Yesterday, the composite European Stoxx 600 fell 1.7percent at the opening. London’s FTSE 100 dropped 1.6percent, while Germany’s Dax was 1.7percent lower.
The Shanghai Composite fell 2.7percent, the Hong Kong Hang Seng lost 1.1percent, and Japan’s Nikkei dropped 2percent.
The chief market analyst for Markets.com, Neil Wilson, said global stock markets started the week under a lot of pressure as fears mount over the spread over the coronavirus outbreak.
“This has the potential to really rattle markets. And with stock markets having been at, or very near, all-time highs before all this broke, this is a perfect selling opportunity,” Wilson said.
“The problem is for most investors this is just not a risk event they are prepared for - a true black swan in the making.
“If politics is hard to grasp for most buy-siders, then virology is impossible - that is enough reason to see de-risking to happen, although I would still anticipate dips to be bought.”
China has confirmed about 3000 cases of the deadly virus so far, with about 80 deaths. Nearly 50 cases have been detected outside China.
Chinese authorities extended the new year holiday by three days to Sunday, and some businesses have closed for trading in a bid to control the spread of the virus.
A senior research analyst at FXTM, Lukman Otunuga, said the outbreak was making investors jittery about investing in riskier assets.
“Rising fears over the human and economic cost of the coronavirus in Asia are fuelling risk-aversion, ultimately reducing appetite for riskier assets, including stocks and emerging-market currencies,” Otunuga said.
“South Africa’s rand has already weakened over 1percent against the dollar on Monday and could extend losses if investors stampede to destinations of safety like gold.”
However, Nigel Green - the founder and chief executive of an independent financial advisory organisation, deVere Group - cautioned that most investors should avoid knee-jerk reactions.
Green said most investors should monitor the situation with their financial adviser and sit tight.
“The coronavirus is the number-one threat to financial markets currently, as global investors are becoming jittery on the uncertainty,” Green said.
“But whilst this health crisis will inevitably hit some sectors, such as travel and retail, most investors who have a properly diversified portfolio should avoid knee-jerk reactions. History teaches us that most issues of this kind have a short-term impact on stock markets.”
Green said stock markets tend to bottom with the peak in new cases during a public health issue of this kind, before rebounding within months.
“This is a worrying and serious situation, and investors must be vigilant. They should remain properly diversified and remain in the market.”