OPINION: SA equities, rand not spared from continuing geo-political uncertainties
Opinion / 30 September 2019, 10:00am / Chris Harmse
JOHANNESBURG - Within a week after the attack on the Saudi Arabia oil facility, the geo-political uncertainties across the world had stared to exact their toll on emerging markets and South Africa was too 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 exchange rate.
Foreign selling of shares and bonds seen as too risky by foreign investors have also taken their toll on South African financial markets.
The news that the US is considering limiting American portfolio capital flows into China also had contributed to world stock prices to soften on Friday.
US treasuries edged higher and oil prices started to dwindle.
On Friday afternoon, the S&P 500 index on Wall street traded at 2972points, about 30points or 1percent lower than the middle of last week when the index had again broken through the 3000 level.
Despite the news that President Cyril Ramaphosa had appointed a new economic advisory council to oversee the smooth implementation of economic policy, the rand continued to come under pressure.
The currency had weakened by more than 11cents against the dollar on Friday and was trading at R15.17. This is 20c weaker than the previous Friday and 60c up against the dollar two weeks ago when the rand still had traded at R14.67.
The new independent body that will be chaired by Ramaphosa included top economists, Professor Dani Rodrik from the John F Kennedy school of Government at Harvard University; Kenneth Creamer, Professor of macroeconomics at the University of Witwatersrand; Alan Hirsch, director of the Graduate School of Development Policy and Practice at the University of Cape Town; Liberty Mncube, former chief economist of the Competition Commission and Mamello Matikinca-Ngwenya, chief economist at First National Bank.
It seems that the implementation of Finance Minister Tito Mboweni's new economic strategy will top the agenda.
It is expected that Mboweni will elaborate on the strategy during his Medium-Term Budget expenditure framework speech on October 30.
On the JSE, the sell-off of equities continued last week.
The Alsi lost 1202 points or 2.1percent last week and closed Friday on 55209. This is 2644 points or 4.6percent lower than the close on September 16, two days before the sabotage of the oil facility in Saudi Arabia.
The index also had wiped out all its gains since the beginning of the month.
Financial shares followed the same pattern and the Financial 15 index had decreased by 6.8percent from its highest during the middle of last month. Despite this sharp fall, the index ended 3.4percent up for the month, while the listed Property index also gained 1.12percent from the beginning of the month. The Industrial 25 (-1percent) and the Resources 10 (-1.5percent) recorded losses over the month.
It is expected that the prices for octane 95 petrol (20c a litre) and diesel (25c a litre) will increase on Wednesday, while the price for octane 93 petrol may decrease by about 3c per litre.
Chris Harmse is chief economist at Rebalance Fund Managers.