JOHANNESBURG – South Africa’s financial assets were battered yesterday, following another escalation in the trade war between Beijing and Washington, with the rand testing the R15 mark against the dollar and the JSE closing the trading session deep in the red.
The local currency weakened to a day’s low of R14.96 against the greenback before staging a comeback in late trade and was bid at R14.89 by 5pm, still weaker than the R14.75 it was bid at at the same time on Friday.
The all share index closed the session more than 2 percent weaker at 54 975 points against Friday’s 56 274 points.
US President Donald Trump slapped China last week with a 10 percent tariff on the remaining $300 billion (R4.42 trillion) of Chinese goods.
Beijing responded swiftly by letting its currency, the Chinese yuan, sink to the weakest level in more than a decade and ordered state-owned companies to halt their purchases of US agricultural products.
Nolan Wapenaar, a fund manager at Anchor Capital, said the rand had basically been the victim of a perfect storm.
“At these levels we would normally consider reducing our holding of US dollars, because some elements of the storm will subside. Unfortunately, we also know that this can take time and the rand can easily remain oversold for the next three years, while domestic politics and Trump’s need to show his supporters benefits from the trade war persist,” said Wapenaar.
The bickering between the world’s two biggest economies saw investors fleeing emerging markets stocks and currencies with only gold and bonds benefiting from the tit-for-tat.
Emerging markets rely heavily on investment from both countries for growth.
Andre Botha, a senior dealer at TreasuryONE, said emerging markets currencies were on the back foot, with the market running to safe-haven assets like gold and the Japanese yen.
“With little in the way of good news, we can expect the rand to try and test the R15 level with risk sentiment currently hugely in favour of safe-haven assets. With the event risk being off-shore at the moment, the rand is at the mercy of the market and we could be in for a rough ride,” Botha said.
Naspers, which is heavily exposed to the Chinese markets via its stake in Tencent, closed the day 4.58 percent down to R3 350, while all financial stocks closed the day in the red.
In more bad news for the ailing economy, data from the Standard Bank Purchasing Managers Index (PMI) showed private sector conditions worsened in July.
The PMI, which gauges business conditions in South Africa, fell to 48.4 points in July from 49.7 points in the previous month. July’s print was also the sharpest decline in the PMI since November as new orders fell the most in nine months.
David Owen, an economist at IHS Markit, said one positive seen in July was that the rand was more settled, which helped to ease import cost pressures.
“Unfortunately, this appears the only good news from the latest PMI survey. While second-quarter results point to a slower decline or even modest recovery in the economy, July data suggest businesses are struggling to achieve further growth at the start of the second half of 2019,” Owen said.