Chris Harmse is the chief economist at Rebalance Fund Managers.
JOHANNESBURG - The unexpected hawkish tariff attack on China by the US last week sent fears of a looming world economic downturn and even recession early next year through financial markets.

Emerging market currencies came under pressure and share prices had their worst week this year on almost all stock markets.

The results of the elections, however, did help calm financial markets locally on Friday.

The rand exchange rate had appreciated strongly and especially financial and banking shares recovered strongly at the end of the week.

The strong rand imposes a welcome approval of the political situation, with the hope that President Cyril Ramaphosa will use the mandate he received from voters to address corruption, implement his investment and six-point economic plan and address the issues at the state-owned enterprises. The stronger rand also will help for a possible relief for fuel and other import prices in months to come.

The announcement by President Donald Trump on Wednesday that the proposed trade deals with China is about to be called off as, according to him, the Chinese government “broke the deal” came as a shock to world share and exchange rate markets.

The actual imposing of an increase in import tariffs from 10percent to 25percent on $200billion Chinese imports on Friday morning had shown that Trump is poised to take a hard stance on US/China trade relations.

The Chinese government immediately hit back by announcing it will retaliate with the necessary countermeasures. “We hope the US will meet us halfway, and work with us to resolve existing issues through co-operation and consultation,” China’s Ministry of Commerce said in a statement.

The ministry did not give specifics on how it would respond.

Share markets experience trade tariffs as imposing a tax on share prices and recorded big losses during the second part of last week.

The S&P 500 experienced one of its worst weeks this year as the index tumbled by more than 4percent for the week just after the opening of Wall Street on Friday.

Many analysts feel that the president went one step too far, lying about his strategy and that tariffs bring no money to the US, but rather tax US companies and consumers. Fears now exist that economic growth in both the US and China is under threat.

For commodity exporters, such as South Africa, a sudden and strong contraction in the Chinese economic growth rate will have serious consequences for their own internal growth.

On the JSE the all share index lost 2519 points last week or 4.2percent. The industrial 25 index had shed 5.7percent and the resources 10 index was down by 4.8percent. The relative stronger rand on Friday helped financials to recover somewhat and the Fin 15 index was only 1.6percent weaker for the week.

The rand exchange rate reflected the thumbs up of foreign investors after the elections. On Friday afternoon, the currency had strengthened to R14.18 a dollar. This is an improvement of 18cents or 1.3percent from the R14.36 the previous Friday. Against the pound the rand gained 39c or 2percent and had improved from R18.88 to R18.49 on Friday. Against the euro the rand had gained 13c over the week and was trading at R15.94.

Chris Harmse is the chief economist at Rebalance Fund Managers.