File image: IOL
File image: IOL

Bullish mood stokes demand for emerging markets exposure

By Chris Harmse Time of article published Apr 8, 2019

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JOHANNESBURG – The rand exchange rate and stocks on the JSE were boosted after Moody’s last week announced that it would be bringing out a grading report on South Africa’s sovereign debt only in November.

US jobs data and hopes for a trade agreement soon with China had supported strong rallies on global share markets.

By Friday afternoon US stocks had increased towards all-time highs as the S&P 500 index approached the record high level reached in September, after a consecutive seven days rise.

The announcement that the US economy created 196000 new jobs in March against the expected 177000 increase, as well as wage gains that had eased and the unemployment rate remaining at 3.8 percent, fuelled the bullish mood for risky assets and the demand for emerging market stock.

President Donald Trump also remarked that the US Federal Reserve should lower interest rates. Olivia Engel, the chief investment officer for active quantitative equities at State Street Global Advisors, however, remarked: “He’s made these kinds of comments before,” and that markets were rather focusing on other things like the real state of the economy.

Consumer prices in the US increased 1.5 percent year-on-year in February 2019, following a 1.6 percent rise in January and below market expectations of 1.6 percent. It is the lowest inflation rate since September 2016.

Share prices on the JSE continued their strong recovery last week.

The all share index gained 1314 points (2.3 percent).

Resources were up by 2.6 percent, whilst the Fin 15 index shot up by 3.5 percent.

Industrial shares improved by 2 percent, but listed property continued its dire straits movement, losing -0.4 percent.

The rand exchange rate rallied last week.

Against the dollar the rand had strengthened by 35 cents to R14.07/$ from R14.42/$ the previous Friday. Against the pound the currency had rallied by 45 cents, moving stronger from R18.73 to R18.28 at the close last Friday. Against the euro the rand also recovered by 2.5 percent from R16.18 the previous Friday to R15.78.

Despite the stronger rand, expectations for fuel prices during May remain negative.

The strong increase in the Brent oil price to $70.42 on Friday will further contribute to an already under-recovery of 84 cents per litre in the petrol price and 10 cents per litre in the price for diesel last Thursday.

If one considers that the levy for carbon tax of 10 cents per litre also will kick in during the beginning of May, consumers once again are in for yet another sharp increase in fuel prices.

This coming week investors will await the latest Business Confidence index from the South African Combined Chamber of Industries as well as the release by Statistics SA of the latest numbers for mining and manufacturing production.

Globally attention will shift to the release of the latest retail sales, manufacturing and industrial production data, and the inflation rates for most developed economies.

Chris Harmse is chief economist at Rebalance Fund Managers.


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