JOHANNESBURG - The JSE all share index dropped to a low of 3.5percent in intra-day trade yesterday as it joined a global equities rout as fears of a US Federal Reserve rate hike and surging bond yields became more pronounced.
The global selloff, which wiped off $4trillion (R48.18trln) in the value of global equities, continued unabated after further sharp falls for stocks in Europe, Asia and the US.
The local bourse sank to a 19-month low of 55090points in intra-day trade before it recovered some losses and closed at a four-month low of 56377points, 1.3percent lower.
The all share index enjoyed a stellar December and January and reached a record high of 61684.77points last month.
Alet Opperman, an analyst and director at TreasuryOne, said the universal belief for the past couple of months was that stock markets had been overextended and that there was a correction imminent.
“Should the losses on Wall Street continue, the current emerging markets (EM) resistance will crumble, and we could see the rand and other EM currencies feeling the heat and start to weaken significantly as the markets will turn risk-averse,” Opperman said.
The rand showed resistance in the face of a resurgent dollar, as speculation mounted that the ANC will push President Jacob Zuma out of office soon.
The ANC’s highest decision-making body between conferences, the national executive committee, is scheduled to meet today to determine the president’s fate.
The local unit was bid at R12.03 against the US dollar at 5pm from the R12.06 it was bid at 5pm on Monday.
Reezwana Sumad, a research analyst of global markets at Nedbank, said the continuing saga regarding the national working committee’s request to remove the president was now weighing on the rand.
“This combined with a broad-based dollar recovery has the rand on the back foot, and until such time as we have clarity on this, the local unit is likely to remain under pressure, with the R12 against the dollar level likely to provide support,” Sumad said.
South Africa has seen foreigners sell R5.8billion in South African government bonds since the recent US Federal Open Market Committee (FOMC) meeting, after R1bn in purchases immediately prior to it.
Expectations are running high that the FOMC meeting next month would see a hike in rates.
Fears of higher and faster-than-expected US interest rate hikes have stimulated risk fears, and the dollar as a safe-haven currency has risen as treasuries rallied with a selloff in equity markets.
The selloff in global bonds was accelerated by Friday’s US labour market reports, which showed not only decent payroll growth, but also a surprise jump in wage growth to the highest level since 2009.
Neil Wilson, a senior market analyst at ETX Capital, said volatility was back with a vengeance.
“We are not there yet, but the chances of this selloff turning into full-blown bear market have increased dramatically.
“If investors look at underlying earnings growth and the fundamentals of the global economy, there is a reason for optimism.
“However, once this kind of stampede starts, it’s hard to stop,” Wilson said.
Economist and market pundits warned earlier this year that overvalued equities were starting to lose their appeal and that accommodative monetary policy appears to be on borrowed time.
Jonathan Loynes, the chief economist at Capital Economics, said markets were previously positioned for an unrealistically benign combination of continued strong growth and very low inflation.
“We have long warned that the markets were complacent in anticipating a continuation of both strong growth and very low inflation, with a correspondingly gentle pace of policy tightening,” Loynes said.