Various reports on dwindling earnings from listed companies also contributed to a week of losses on the JSE. Photo: Karen Sandison/African News Agency (ANA)
JOHANNESBURG – The aftermath of the further downgrading of South Africa’s sovereign debt by S&P 500 to junk with a negative outlook, the negative report on economic prospects for the country by the International Monetary Fund, the news that Eskom’s debt now stands at R454 billion and negative perceptions on the country’s growth prospects, all contributed to a week where investors got rid of South African shares.

Share prices and bond rates remained under pressure, although the rand stood its ground.

Various reports on dwindling earnings from listed companies also contributed to a week of losses on the JSE.

Globally, trade talks between the US and China came to a halt after President Donald Trump on Wednesday signed harsh legislation that authorises sanctions on Chinese and Hong Kong officials responsible for human rights abuses in Hong Kong.

The Trump Administration as well as the US opposition democrats are openly supporting the pro-democracy activists. This support sparked fury among Chinese officials and increased escalating tensions between Beijing and Washington.

Despite these negative market sentiments that saw share prices contract last week, various economic indicators started to show that the South African economy was on the brink of improving.

The news that the BER/FNB business confidence index improved to 26 in the fourth quarter of 2019 from a 20-year low of 21 in the third quarter, brought some relief for investors and economic prospects.

Lower price increases at the factory gate as measured by the Producer Price Index (PPI) during October also sparked some hope towards a long-awaited improvement in economic confidence. The PPI dropped to 3percent in October from the 4.1percent level in September.

The main contributor to the slower growth in the PPI was intermediate manufacturing goods that recorded a 0.6 percent decrease in prices since a year ago as the annual rates of recycling and manufacturing * .e.c. (-1.4percentage points) and chemicals, rubber and plastic products (-1.1percentage points) had drawn down the index. The worrying aspect remain the sharp increases in electricity and water.

The rand remained strong during the week with marginal levels of depreciation. Against the dollar, the local currency traded in a narrow band of between the levels of R14.65 to the dollar and R14.82 for most of the week. The rand ended the week flat on R14.72, weaker against the pound on R19 and at R16.22 against the euro, the same level as a week ago.

The JSE struggled last week as equities traded mostly negatively across all sectors. The all share index ended Friday on 55349 points, or 1411 points lower (-2.5percent) since the previous Friday.

Financials were down 4.3percent for the week, the industrial 25 index lost 3.2percent and resources moved downwards by 0.7percent.

On the capital market, bond rates traded higher with the Government R186 bond losing 0.8percent over the last two weeks, trading at 8.45percent at the close on Friday.

Dr Chris Harmse: Economist and chief investment officer at Rebalance Fund Managers.