Coronavirus and fear of a downgrading cause havoc in markets
Most bourses across the globe had a brutal downturn of more than 10percent over the week. In the US the Dow Jones at the opening on Friday already had lost almost 15percent from its record high level of 29551points just 12 working days ago. In most developed countries treasury yields had sunk to all-time lows. In the US, the two-year bond had tumbled to 1percent and 30-year old Treasury paper had slid to 1.7percent as investors fled equity markets.
Oil also dwindled sharply downwards, trading more than $4 (R62.51) per barrel lower than the previous Friday as Brent had slipped to under $50.50 on Friday afternoon.
Even the gold price had lost its safe-haven status as bullion lost $24 alone on Friday and had traded on $1621, much lower than the $1660 levels earlier last week.
In Europe most equity indices traded down from their previous low of August last year. In the UK the FTSE 100 lost 12.7percent for the week and the Dax in Germany was down by -14.70percent . The MSCI world Index up to Thursday lost 11percent since February 12, and both the MSCI Asean and MSCI Emerging market indices lost more than 12percent .
Despite the best Budget Speech that the Minister of Finance could deliver last Wednesday, the South African financial markets experienced a blood bath last week. Some analyst is of the opinion that the sharp depreciation of the rand against most other currencies since last Thursday can be attributed to the remarks of the rating agencies, especially Moody’s.
The rating agency once again raised its concern on the high debt path of government spending as Minister Mboweni had indicated that gross national debt will increase to 65.6percent of gross domestic product (GDP) in 2020/21 and that the consolidated budget deficit will be 6.8percent of GDP. Moody’s is also concerned on the negotiations with the labour unions over the announced cut of the government wage bill by R160 billion over the next three years.
The rand had depreciated last week by 67cents from R14.99/$ to R15.66/$ late on Friday afternoon. Against the pound the currency had lost 65c to trade on Friday on R20.09 and against the euro had lost during the week 88c to end on R17.19.
On the JSE havoc was spread among investors last week as one of the biggest weekly sell-off over the last 12 years occurred. The Alsi lost 11percent and ended the month down 9percent.
The Industrial board traded down by 9percent and lost 6.5percent during February. Resources were down by 15.8percent and traded lower by 11.6percent for the month. The biggest loser was listed property trading down by 9.4percent during the week and lost 15.8percent for the month.
On the capital market bonds performed relatively well as the R186 bond ended the week on 8.15percent marginally higher than the 8.09percent level the previous Friday.
Dr Chris Harmse: Economist and chief investment officer.