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China’s equities sell-off weighs on emerging markets

Chris Harmse is the economist of CH Economics (Pty) Ltd. Photo: File

Chris Harmse is the economist of CH Economics (Pty) Ltd. Photo: File

Published Sep 20, 2021


SHARE PRICES in Hog Kong had one of their biggest pullbacks last week. The Hang Seng index traded lower by more than 5 percent owing to fears of further regulatory concerns regarding sectors like gaming, technology, and China’s steel output cuts.

The heavy selling of equities in China also led to negative sentiment in stock markets in other emerging markets like South Africa. The strong decrease in commodity prices, especially gold, platinum, and steel last week, due to speculative selling towards buying dollar, led to resources shares plummeting last Thursday and Friday.

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Iron ore prices took a big tumble and in Australia the share prices for Rio Tinto dropped 4.7 percent, BHP lost 3 percent and the Fortescue Metals Group was sold off by 11.5 percent.

This big fall in commodity prices saw the Resources 10 index on the JSE losing 7 percent last week, as the gold price lost ground, trading Friday evening at $1 754 (about R25 454) an ounce. This was $78 lower than two weeks ago.

Platinum price decreased by $88 over the last three weeks. Anglo American Platinum was down by 7 percent since last Tuesday. The BHP group tumbled by 4.7 percent last Thursday and Friday and AngloGold Ashanti also lost 3.6 percent the last two trading days.

The retail sales dropped 11.2 percent in July on an annual basis and with 8.4 percent over the three months up to July 2021. The looting and unrest in KZN and Gauteng were the main contributors to this sharp fall in sales of shopkeepers. The gloomy data also contributed to selling of retail shares since last Wednesday.

On the JSE, the all share index traded down 2.2 percent over the week and is now 7.1 percent lower for the last three weeks.

Despite the week rand that normally boosted rand hedging shares, the Industrial 25 index still ended the week 0.9 percent in the red.

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Financial shares were 1.2 percent higher and listed property increased 2.5 percent.

The rand took a hiding last week. The sell-off was mostly due to speculative negative trade last week, after traders felt that the rand was stronger than its fair value at the end of the previous week as the currency traded around R14.10 to the dollar.

Together with the effect of lower commodity prices for South Africa’s main exporters and the overall negative sentiment against emerging market currencies, the rand came under pressure.

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Against the dollar, the currency lost 60 cents last week and was trading Friday evening at R14.74 against the R14.16 the previous week’s close.

Against the pound, the rand depreciated by 66 cents to trade above the R20 level (R20.28) again.

Against the euro, the local currency last week traded weaker by 54c at R17.30.

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On the capital market, the shorter-term bond R186 traded 1.1 percent higher on 7.47 percent.

Despite the weaker rand and higher spot oil price (Brent at $75.50) the petrol price is still over-recovered by 17c a per litre and diesel by around 8c a litre and may decrease at the beginning of next month.

This week investors and analysts will concentrate on the Monetary Policy Committee (MPC) of the Reserve Bank’s meeting starting tomorrow, with its interest rate decision that will be released on Thursday.

It is expected that the MPC will keep the repo rate at 3.5 percent, especially given the risk of a weaker rand.

StatsSA will publish the inflation rate data on Wednesday. It is expected that the growth in the CPI during August was 4.8 percent over the corresponding period last year.

Chris Harmse is the economist of CH Economics (Pty) Ltd.

*The views expressed here are not necessarily those of IOL or of title sites.