JOHANNESBURG - Ratings agency Moody’s decision
to downgrade South Africa’s sovereign credit rating to sub-investment grade reverberated throughout the JSE yesterday, hitting the rand as well as banking and retail stocks as the market digested the junk status accorded to the country.
Banking stocks took a hammering, falling 4.68percent to 4598.37points, and retail stocks eased 5.25percent to 3015.12points despite the FTSE/JSE All Share Index (Alsi) rising 1.09percent to 43413points, and the JSE Top 40 Index firming 1.49percent to 39756.74points.
Standard Bank tumbled 3.23percent to R95.99, FirstRand 2.98percent to R37.49, Absa 12.07percent to R63.30, and Nedbank 7.99percent to R73.20.
The rand has fallen nearly 30percent against the dollar since the beginning of the year. Yesterday, it eased as much as 2.5percent to R18.09 in early morning trade before recouping the earlier losses to R17.95 by 5pm.
Anchor Capital’s Nolan Wapenaar said the rand fell out with investors in the risk-off environment after starting the year at R14.01 to the greenback.
Wapenaar said the currency would probably rebound once the coronavirus was dealt with, but warned that it would weaken even further towards R20 if it continued.
THE RAND weakened and breached the R18 barrier against the dollar for the first time after falling as much as 2.5 percent to R18.09 in early morning trade. Reuters
“The truth of the matter is that we are in a volatile price environment. There are three shocks that have seen the rand weaken in these three months: the coronavirus, the Opec oil price war, and the Moody’s downgrade,” Wapenaar said.
“Our forecast is that the rand will recover some time this year after the coronavirus, and it will be a fast snapback. But another shock could push us toward the R20 mark.”
Wapenaar said the bright side of the weak rand was the potential short-term gains by the exports market, as well as the import market as the cost of buying oil has decreased.
Moody’s Investors Service on Friday cut its assessment of South Africa
to sub-investment grade and maintained the negative outlook due to the continuing deterioration in fiscal strength and structurally very weak economic growth.
Moody’s said unreliable electricity supply, persistently weak business confidence and investment, and labour market rigidities continued to constrain the economy.
The downgrade means that Africa’s most industrialised economy will be removed from the FTSE 100 World Government Bond Index, although it would remain for another month.
FXTM’s Lukman Otunuga said nobody wanted anything to do with the rand yesterday as the downgrade would result in a sell-off.
“This unfavourable development could not have come at a more challenging period, filled with panic over the coronavirus outbreak and fears around a global recession,” Otunuga said.
“If the dollar/rand secures a solid monthly close above R18, this could open the path to uncharted territories never seen before.”
But the Alsi closed in a positive territory yesterday, gaining 1.56percent to close at 43616points, despite the weakness of the rand.
The Top40 Index was 1.49percent higher at 39756 points.
Retail stocks also took a hit, with Woolworths declining 3.25percent to R27.08, while Massmart recovered by 0.37percent to R27.02 after declining 5.05 percent in the course of the day.
Pick * Pay was 3.53percent down to R61.55, while Shoprite eased 0.15percent to R120.68 per share.
However, mining stocks performed higher, moving up 2.84percent to reach 34484 points.
Gold mining rose by 2percent to 3152 points, and platinum mining slightly went up by 0.62percent to 36.82points.
Anglo American was 2.91percent higher to close at R293.50, while Harmony Gold gained 0.81percent to R42.49, and AngloGold Ashanti rose by 1.32 percent to close at R338.13.
Impala Platinum eased 0.22percent to R75.59, while Sibanye-Stillwater gained 0.97percent to close at R24.03.