PRETORIA – One would not have expected, in a week of domestic political drama and further evidence that business confidence in South Africa is dwindling, that local financial markets would have one of their best weeks this year.
The Alsi on the JSE had increased by more than 2.7 percent, the rand exchange rate appreciated by 1.6 percent and the R186 government bond rate had decreased to 8.16 percent, one of the lowest levels this year.
The crisis for the ANC government after the backlash of students and the public over yet another rape and murder, that of young UCT student Uyinene Mrewetyana, as well as the latest crime statistics had put public opinion on the warpath.
In the light of these developments, Khusela Diko, President Ramaphosa’s spokesperson, said in a cellphone message on Friday that the president intends to announce an urgent joint sitting of Parliament this week.
This will be the first urgent joint sitting of Parliament since the end of the apartheid era. On the economic front, the South African Chamber of Commerce and Industry (Sacci) had announced that the Business Confidence index declined to 89.1points in August - the lowest since the height of the Angola-South Africa war era in August 1985.
Despite these negative sentiments domestically, the effect of global geopolitical and economic optimism, South African financial markets improved drastically last week.
The US-China trade war fears started to ease even more last week as optimism over a trade deal this week is growing. Risky assets on global stock markets also became more in-demand after the European Central Bank had cut interest rates by 10 basis points and plans to buy back government paper worth €192 million (R2.09 billion).
As a result of these policy statements, treasury yields on global markets are heading for their highest levels in 10 months.
The news that US retail sales had increased by 0.4percent in August, doubled the expected 0.2percent, also contributed to equity prices on world markets to have ended Friday on a third consecutive gaining week. The S&P 500 on Wall Street had broken once again through the 3000-point level and is now within 0.5percent from its all-time high.
On Friday afternoon, the Alsi closed on 57 124 points, or 2.7 percent higher than the previous Friday close. Despite the stronger rand the Resources 10 index as well as the heavy and hedging Industrial 25 index had surged by 2.6 percent.
The stronger currency supported financial shares and the Financial 15 index had increased by 4.2 percent, while the listed Property index had improved by 0.6 percent.
The strong recovering of the rand against the major currencies continues. The currency ended last week on R14.54/$. This is 65 cents stronger (4.2 percent) than the end of August. Against the pound the rand moved sideways, despite a spike in sterling as signs emerge that progress in Brexit negotiations are possible. The rand ended last week 19 c stronger against the Euro at R16.11.
Chris Harmse is chief economist at Rebalance Fund Managers.