Rand at new lows as easy money across the globe fails to comfort
• Experts say it is impossible to see the end of it amid highly volatile markets
The rand slumped to new lows and the JSE extended losses as unprecedented stimulus by governments and central banks across the world showed little sign of calming investors spooked by the prospect of a prolonged recession.
Locally, markets were on edge as investors awaited President Cyril Ramaphosa’ saddress to the nation in which he confirmed that the country would be on lockdown for three weeks to slow the spread of Covid-19, a move that could bring the already struggling economy to a halt. The rand dropped as much as 1.6% to R17.8991/$, just 2c short of a record low reached in January 2016. By 5.15pm, it was at R17.7305, a loss of 0.7%, an alltime low based on closing prices. It was another miserable day on the bond markets too, with the 10-year yield jumping 66 basis points, or 0.66 percentage points, to 12.33.
The yield, which moves inversely to the price, has jumped 3 percentage points in just two weeks, reflecting fear and the flight from riskier assets, as well as a lack of liquidity in the market. Price moves are exaggerated because sellers are struggling to find buyers.
The Reserve Bank, which is led by Lesetja Kganyago, cut interest rates by 100 basis points on March 19, introduced measures on Friday to encourage smooth trading in markets and facilitate interbank lending. Last week the JSE said it was closely monitoring capital adequacy and liquidity to ensure settlement and investor protection.
“Investors are selling what they can, not what they want, namely the most liquid securities,” Old Mutual Investment Group’s strategists Dave Mohr and Izak Odendaal wrote in a note. “Markets continue to be extremely volatile. It is impossible to know when and how this ends.”
Local sentiment was dented as the number of confirmed cases surged past 400. That makes it more likely that SA will resort to a shutdown similar to those imposed in some European countries and cities across the US, bringing with it the potential for depression-like economic damage.
The US Federal Reserve, which has been struggling to convince investors that it has the firepower to contain the fallout of the coronavirus, said it would buy an unlimited amount of bonds and other governmentbacked securities, having previously said it would buy at least $700bn of the assets.
While positive, the effect was still limited. The Dow Jones Industrial Average was down 2.8%, after earlier falling as much as 3.5%. The JSE’s all share index lost 5.2%, taking its 2020 drop to 33%. That means investors have lost about R4trillion of value, equivalent to about 80% of SA’s entire GDP.
“The world is highly unpredictable, and we cannot know when foreign selling of SA assets will stop, nor how much economic damage we will end up inflicting on ourselves,” said Nolan Wapenaar, chief investment officer at Anchor Capital. “We expect this volatility to continue for a while, though in the long run we believe this is the best buying opportunity for the rand and domestic bonds that we have seen in many decades.”
INVESTORS ARE SELLING WHAT THEY CAN, NOT WHAT THEY WANT, NAMELY THE MOST LIQUID SECURITIES.