Equities open New Year on record high levels
SHARE prices on the JSE for most sectors started the year strongly.
The JSE had his best week since 1999. The all share index opened the year on 59409 points, or 4.1 percent higher for the year. The index shot up last week by 4110 points, or 6.9 percent, to close Friday on a new record level ever of 63519.18 points.
Resources rallied strongly, lead by mining sector shares. The resources 10 index improved by 13.31 percent, since the opening on Monday.
Owing to the weaker rand last week, rand hedge stocks pushed the industrial index up by more than 4 percent.
Financial shares also ended the week in positive territory as the Fin 15 traded higher by 2 percent. The news that South Africa would administering the Covid-19 vaccine next month also led to investors returning to risky assets.
Although the year started with big uncertainty and potential downside risks that could push the South African economy into a deeper recession, the rollout of various vaccines across the world kick started a wave of optimism that the world economy may recover back to pre-pandemic level.
Forecasts by the World Economic Forum as well the International Bank expects global economic growth to return to a 5 percent growth in world economic output. Together with expected additional fiscal stimulus by the newly elected President Biden’s administration, as well as record low levels of interest rates to be upheld by the US Fed, share prices on Wall Street also reached record high levels last week.
The S&P 500 index broke through the 3800 points level on Friday, while the Dow Jones industrial index traded on a record level above 31030 points.
The Nasdaq easily broke through a record 13000 points level and on Friday traded on 13160 points.
The US labour market lost 140000 non-farm jobs in December, the first time in eight months, as payrolls plunged in restaurant employment. This highlights how surging coronavirus infections are taking a greater toll on certain parts of the economy.
The overall unemployment rate in the US, however, remains on 6.7 percent.
The rand, in line with other emerging market currencies, recorded a steady depreciation since December 31 2020. Against the dollar, the currency lost about 65 cents (4.4 percent) from R14.68 at the beginning of the year to R15.33 on Friday evening.
Against the pound, the rand depreciated by 71c (3.5 percent) to R20.77, and against the euro over last week traded weaker by 72c (4 percent) on R18.73.
Down side risks on the uncertainty around the ability of the Government to roll out the Covid-19 vaccine in a compliant and cost effective way, as well as geopolitical worries around the Government to act against ANC’s alleged corrupt members will bear on the rand in weeks to come.
The state of the Nation Address by President Ramaphosa, as well as the National Budget speech in just more than a month’s time will also lead to uncertainty that may see the rand depreciating further.
Two prominent anti-corruption events will also continue in February. The appearance of Ace Magashule in February in the magistrate court in Bloemfontein related to the R255 million Free State asbestos cases in which businessman Edwin Sodi and a number of other prominent figures also have been charged, will be crucial.
Former president Jacob Zuma is also set to appear again before the Zondo Commission later this month and in
February. His cases will set the tone towards the ability of the national prosecution authority and the government to act against corruption.
This week all eyes will be on the release of the manufacturing production data for South Africa during November tomorrow and also the announcement of the retail sales data for the same month on Wednesday.
Globally, investors will look out for the announcement of the inflation rate for China today and for the US on Wednesday.
Germany will announce its government budget on Thursday. The UK will release its latest balance of trade numbers, manufacturing and industrial production data, also on Thursday.
The US will publish its retail sales, manufacturing and industrial production data for December on Friday.
Dr Chris Harmse is an economic consultant CH Economics