JOHANNESBURG – Bank and retail stocks fell sharply on the JSE yesterday as investors dumped riskier assets for the safety of metals in the wake of the attacks on Saudi Arabian oil installations.
The bank index slid 3.55 percent – the steepest decline in more than three months – as the rand weakened and investors weighed the impact of the attacks on emerging markets.
FirstRand took the highest beating, with its shares falling 4.49 percent to R64.71. Nedbank followed suit, losing 3.64 percent to close at R242.09, while Standard Bank dipped 3.36 percent to R186.81, Absa closed 2.8 percent lower at R167.24 and Capitec was down 0.77 percent to R1 280.
Retailers recovered slightly in the afternoon, with the index dropping 1.9 percent after falling 2.1 percent in the morning. The gauge for food and drug retailers was 1.87 percent lower. Shoprite led the rout, falling 4.41 percent to R125.38.
Pick n Pay eased 3.15 percent to R62.47, while the Spar Group fell 2.4 percent to R192.08. The attacks on Saudi Aramco have seen the oil price rocket by as much as 20 percent as global supply concerns hit the market, leaving the rand drifting 12 percent weaker against the dollar since Monday.
By 5pm yesterday, the rand changed hands at R14.72 against the greenback.
The knee-jerk reaction forced the market into risk-off mode as oil jumped immediately higher and emerging markets sold off. The latest oil price spike has caused headline inflation concerns and has had ripple effects in the world economy. Investment strategist at Old Mutual Izak Odendaal said it was generally understood that the reaction was negative for other sectors such as retail. Odendaal said movement in oil price following expectations that the SA Reserve Bank (Sarb) would cut rates tomorrow may have also triggered the sell-off in banks and retail stocks.
“The basic theme is that higher oil prices and a weaker rand are inflationary. The rand has been weak over the past two days and this oil attack was a black swan event for the market,” Odendaal said.21&oq=ShotSpotter+deployed+in+Kruger+National+Park+to+fight+rhino+poaching+IOL&aqs=chrome..69i57.1654j0j9&sourceid=chrome&ie=UTF-8
“Bank stocks were probably expecting a cut in interest rates. There was a big move up in the oil price and everyone got a fright. But the oil price is lower than it was a year ago. There is Moody’s report coming out soon, there is a midterm budget and the Reserve Bank may still cut rates in November.”
The rise in crude oil prices is also expected to put upward pressure on consumer and producer price inflation given that SA is a net importer of oil, and put further pressure on the economy. Senior dealer at TreasuryOne Andre Botha said the direction of the rand echoed the sentiment that emerging markets had lost favour.
He said only the direction of the US Federal Reserve meeting today could restore confidence in emerging-market assets. “One of the immediate factors is that some analysts are now cautioning the market that the Fed could hold rates unchanged to first assess the inflation impact that the latest market shock could have on economies. However, the overall feeling is that the Fed will cut their interest rate tomorrow,” Botha said.
“With no major data releases up until the FOMC meeting, the sentiment will be the main driving force behind the market, which indicates weaker emerging markets in the short term.” Meanwhile, mining stocks rose 0.8 percent, with precious metals producers leading the gains.