JOHANNESBURG - The ongoing negative global and domestic perceptions towards risky financial assets continued last week, wiping almost all the gains out on the JSE for the year to date. On Friday afternoon, the ALSI ended on 53874.
This is mere 1138 points or 2.2percent higher than its opening level of 52736 on January 2. At one stage the ALSI was on 59544 (April 23), a gain of almost 13.0percent.
The day just before the disappointing decision of the Federal Reserve of the US to decrease the US bank rate by only 0.25percent, with a warning that it could be the only time that a rate cut will take place this year, the big sell-off of shares on the JSE board had started.
These negative perceptions were strengthened by firstly the news of the worst unemployment rate in South Africa for three decades of 29percent during the second quarter.
But he worst was still to come. Clouds of a final downgrading to junk status by Moody’s, the seemingly ongoing in-fighting among factions within the ANC; and between President Cyril Ramaphosa and State Enterprises Minister Pravin Gordhan versus Public Protector Busisiwe Mkhwebane; the Eskom saga; incidence of xenophobia that have increased; and the proposals for a new government medical insurance scheme set the tone towards further despair.
Share prices, bond rates and the rand exchange rate were to give in under these pressures. The news last week that the German economy had grown negatively (-0.3percent) in the second quarter and that China will retaliate with further tariffs against the US, led to more negative sentiment.
Financial shares and listed property seem to take a bigger knock due to the negative sentiment.
The Financial 15 index started the year on 16380 and reached its highest point of 17536 or up by 7.0percent on June 7.
The index traded on 14748 or 9.9percent down by Friday, since the beginning of the year.
Listed property followed suit. The index started the year on 478 and could not gain at all with the best level of 477 on June 2. The index ended Friday on 464 or 3.0percent lower since January 2.
Despite the weaker rand the Resources 10 index had reached its best level of 48730 (up by more than 18.0percent) on April 8, just to close on 42374 or only 3.2percent up for the year on Friday.
The Industrial 25 index, given its hedge against the weaker rand, due to rand hedging stock in the index (like Naspers) had gained initially by more than 17.0percent up to August 1, just to lose again 6.9percent till Friday. But the index is still 8.7percent higher than at the beginning of the year.
The rand exchange rate had depreciated sharply from July 23 considering the above, almost despair selling.
The currency had lost 154 cents (11.1percent) against the greenback from R13.86 to the dollar to R15.40 to the dollar on Wednesday. Against the pound the rand was weaker by 127 cents or 7.3percent, trading at R18.56 against R17.30 in the last week of July.
In the same manner, the rand had depreciated by 170 cents against the euro from R15.46 to R17.16 in the middle of last week. Although the currency had strengthened again at the end of last week, it remains vulnerable, and is likely to react strongly on any further negative perceptions.
At the close on Friday evening the rand traded still higher than R15.22 to the dollar, R18.50 to the pound, and R16.90 to the euro.
Chris Harmse is chief economist at Rebalance Fund Managers.