JOHANNESBURG – South African banks bore the brunt of the weaker rand after the third-quarter current account deficit widened to R176.6 billion from R167bn and continued fears that the truce in the trade spat between the US and China will be short-lived hurt sentiment.
The rand reached a day's low of R14.11 from a day's high of R13.85, weighed down by the soft current account print, geopolitics, load shedding and parliamentary approval to amend Section 25 of the Constitution.
The key bank index plunged 3.28 percent to 8 850 points, and 18 percent down from a year high of 10 848 points.
Standard Bank shed 3.29 percent to R172.80, while Absa lost 3.36 percent to R154.14 and Nedbank was down 3.14 percent to R257.87. The country's biggest bank by market capitalisation, FirstRand, was 3 percent weaker at R66.25 while Capitec shed 2.01 percent to R1069.04.
The plunge in the banks index saw the all share index close the trading session 2.07 percent in the red at 50 641 points, while the benchmark Top 40 index lost 2.38 percent to 44 589 points. Local markets have been battered since the all share index reached a record high of 61 684 in January as Ramaphoria wave swept through the markets.
Nkareng Mpobane, the chief investment officer at Ashburton Investments, said it had been an extremely challenging period in the markets, with investors disillusioned.
“Giants such as MTN, Aspen and Tiger Brands declined by over 40 percent during 2018, while a few other well-regarded names fell more than 30 percent. Naspers lost about a fifth of its value since the beginning of the year and even the ever-popular property sector fell by a similar amount,” Mpobane said.
Third quarter current account data did little to uplift sentiment with the deficit widening to 3.5 percent of gross domestic product (GDP) from 3.4 percent in the prior quarter.
William Jackson, the chief emerging markets economist at Capital Economics, said the pick-up in GDP growth in the third quarter and hawkish language from the Reserve Bank made it more likely than not that interest rates would be raised again soon. “The larger-than-expected South African current account deficit in the third quarter, of 3.5 percent of GDP, adds to the reasons to think that the Reserve Bank will tighten monetary policy a little further in the next few months,” said Jackson.
The SA Revenue Service said last week that the trade deficit had widened to R5.5 billion in October. It was the largest trade gap since January, as imports rose faster than exports.
Data from the Standard Bank private sector activity survey also showed export orders in November had dropped at the fastest rate in 18 months, which resulted in firms cutting inventories to their lowest level since July 2014.