Global bond sell-off hits All-Share index
THE JSE TOOK a pounding yesterday after global bonds sell-off tampered the optimism of equity investors in spite of a steady rand.
The All- Share index closed 2.63 percent weaker to 57 113 points from 58 657 points in the previous trading session – its worst level in more than three months.
Old Mutual Multi-Managers investment strategist Izak Odendaal said the volatility and equity sell-off late last week were a result of the re-pricing of interest rate expectation.
“After a strong surge upwards over the past couple of months, a correction is pretty normal and not entirely a bad thing,” Odendaal said.
“The economic fundamentals remain solid and this means companies can still grow profits, which is what long-term investors should care about. Short-term moves are usually driven by sentiment.”
Financial stocks, gold min- ing and resources stocks fell with the key banks’ index down 303 points or 3.15 percent. Capitec shed 6.45 percent to R864.66, while Standard Bank eased 3.96 percent to R195.09.
Nedbank fell 3.11 percent to R255.79, while FirstRand shed 2.76 percent to R64.57 and Barclays Africa was 1.06 percent weaker at R180.07.
Wayne McCurrie, from Ashburton Investments, said the wage inflation data out of the US scared the market – particularly rand hedge stocks.
“US wage inflation was at an eight-year high,” McCurrie said. This is the big question: Is this the end of the goldilocks years of low-interest rates and good equity markets?”
The sell-off in global bonds was accelerated by Friday’s US labour market reports, which showed not only decent payroll growth, but also a surprise jump in wage growth to the highest level since 2009.
This gave rise to calls for the US Fed to speed up the gradual interest rate hiking cycle. The Fed is currently expected to deliver three small rate hikes this year, while it is also expected to continue reducing the size of its balance sheet by $50 billion (R603.51bn) a month by not reinvesting maturing bonds.
Reezwana Sumad, an economic analyst at Nedbank, said the improvement in the US payrolls saw the markets buy dollars with some enthusiasm.
“Locally the apparent inability of the ruling party to implement change is likely to see the local unit trade on the back foot until such time as tangible measures have been implemented, currently much debate on the impending State of the Nation Address (Sona) and who will be delivering this,” Sumad said.
The local currency enjoyed some strength as the ruling ANC top brass seemed determined to see the back of President Jacob Zuma. The rand was bid at R12.08 by 5pm, a marginal improvement from the R12.05 it was bid at on Friday.
Allet Opperman, an analyst at TreasuryOne, said she still expected Zuma to deliver the Sona later this week.
“There is potential for some volatility as we head towards Sona with protests being organised between pro and antiZuma supporters.”
“The rand, already looking nervous about the US data, will be under more pressure from local factors should local politics end the week with negative sentiment,” Opperman said.