SOUTH African stocks opened the week on the back foot yesterday after a long weekend as the signs of a fifth wave of the Covid-19 pandemic and rotational power cuts affected sentiment while expectations of aggressive monetary policy tightening in the US weakened the rand.
The JSE All Share Index closed 1.5 percent lower at 71 339 points yesterday, dragged down by commodity-linked sectors and industrial firms.
At 3pm the resources index fell by 1.3 percent as the largest resources companies were trading in the red later, but later in the day closed 0.42 percent lower at 76 871.77 points.
The industrial index eased by 2.14 percent to 78480.27 points at the close.
By 3pm Thungela Resources led the pack of losses as its share price shrank by 7.3 percent to R251.97 per share, followed by Exxaro Resources, which declined by 4.6 percent to R216.04 per share while Sasol eased by 2.2 percent to R384.15 per share. However, later in the day these three shares marginally recovered.
There are fears that South Africa may be entering the fifth Covid-19 wave earlier than expected following a sustained rise in new infections over the past 14 days, driven by two sub-variants of the Omicron strain.
The Department of Health has also noted with concern the current spike in Covid-19 infections that appears to be driven by the BA.4 and BA.5 Omicron sub-variants.
Another wave of Covid-19 infections will likely spook fragile investors even though there’s currently no talk of any lockdown or any further Covid-19 restrictions yet.
Eskom also implemented Stage 2 load shedding yesterday afternoon due to severe generation capacity constraints owing to delays in returning generators to service, as well as breakdowns of nine generators.
Meanwhile, the rand surprised on the up yesterday.
By 5pm the rand was bid at R15.81 against the dollar, 21c higher than on Friday’ at the corresponding time. This in spite of markets increasingly worrying that the US would hike its interest rates significantly more than South Africa in the second quarter.
Benguela Global Fund Managers’ portfolio manager Karl Gevers said the rand had been quite volatile yesterday, having began trading at around R16.08 to the greenback.
Gevers said the upcoming Federal Open Markets Committee (FOMC) meeting was expected to hike rates by at least 50 basis points to curb the historic high inflation in the US.
“The biggest factor there causing the volatility is interest rates hiking cycle and expectations in the market, especially the Fed that they will increase interest rates by half a percent tomorrow at their meeting and that will certainly cause a strong dollar, and as such, a weaker rand,” Gevers said.
The markets have factored in another 50 basis points hike in June, and indeed two more at the FOMC’s July and September meetings, a 2 percent lift in total.
Investec chief economist Annabel Bishop said the rand had weakened 9 percent against the dollar since mid-April, but more importantly, the markets also worry about the impact of a 2.5 percent US rate hike on future global growth.
“The rand remains at risk of a weaker interest rate hike cycle in South Africa than in the US, with the domestic currency seeing severe depreciation in the past,” Bishop said.
“Additionally, the sell-in-May and-go-away phenomenon tends to see rand weakness in the middle two quarters of the year, and rand strength in the first and last quarter of the year.”
BUSINESS REPORT ONLINE