File image: IOL
File image: IOL

Is there a turnaround in negative market sentiment?

By Dr Chris Harmse Time of article published Oct 7, 2019

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JOHANNESBURG - For most of last month, geopolitical uncertainties across the world took their toll on emerging markets and South Africa was not spared.

The almost “no deal” in the trade negotiations between the US and China, the almost “no deal” in the Brexit ordeal and the noises on a possible impeachment of US President Donald Trump had devastating effects on South African equity prices and the rand.

The pattern continued during the first half of last week as more and more economic data started to emerge that pointed towards a stronger downturn in global economic growth than was anticipated. Weaker US and European manufacturing data released last Monday, as well as weak earnings reports from carmakers, are forcing investors to reconsider their strategies.

The most recent economic numbers are driving concerns that a slowdown, which had been mostly confined to manufacturing, may be spreading to the consumer as the US-China trade war drags on.

US stocks tumbled to their lowest since August by Wednesday as another disappointing report fuelled fears that the US economy was slowing.

Treasuries climbed with gold and the yen on demand for safe haven assets. The S&P500 suffered its first back-to-back drops of more than 1percent this year, pushing its two-day slump to the most in two months, as private payrolls fell short of estimates a day after a manufacturing gauge slumped to the lowest in a decade. The index plunged below 2900 points and took out its average price for the past 100 days, levels it had not breached in a month.

The Dow Jones Industrial index alone lost 3.2percent until Wednesday, while the German DAX had tumbled by 4.2percent from Monday. The FTSE100 in London had lost 4.5percent between the previous Thursday and last Wednesday.

The all share index on the JSE could not avoid these negative movements on international bourses. The index lost a further 1482 points (2.6percent) since Monday and ended Wednesday on 53727 points.

Stocks in the US, however, started to recover strongly since Thursday as investors ramped up bets that the Federal Reserve would cut rates this month to shore up an economy showing increasing signs of weakness.

The all share index traded above the 54000 points level for most of Friday, but ended at 53994 points, up by 0.5percent on the day.

The more bullish sentiment from global investors towards the rand and domestic bonds boosted financial and banking shares, with the financial 15 index up 1.32percent on Friday alone.

The rand started to recover on sentiment towards a US rate cut. The currency had gained 18 cents against the dollar since the previous Friday.

Chris Harmse: Chief economist at Rebalance Fund Managers.


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