DOLLAR HAM­MERS CUR­REN­CIES, COM­MODI­TIES

Financial Mail - Investors Monthly - - Analysis - An­dries Mahlangu

merg­ing mar­ket as­sets suf­fered a set­back in March as in­vestors braced them­selves for a po­ten­tial first rise in US in­ter­est rates in years.

The sell-off, mainly in mid-March, knocked the MSCI emerg­ing mar­ket in­dex to its low­est level since early Jan­uary as in­vestors sold stocks, cur­ren­cies and bonds. “In­ter­est rates glob­ally have been low for such a long time that in­vestors don’t know how to deal with them nor­mal­is­ing,” says Old Mu­tual Wealth re­search and in­vestor ser­vices head Avien Pil­lay.

Stock mar­kets took a hit, with the JSE all share in­dex los­ing 2% within a week af­ter a bet­ter US jobs re­port raised the prospect of a hike in US rates for the first time since De­cem­ber 2008.

Rus­sia’s Micex and Brazil’s Bovespa were down more than 5% re­spec­tively on March 13.

The rand caught the sharp end of the stick as in­vestors sold out of stocks and bonds, drop­ping to its weak­est level to the dollar since 2002, at about R12,30/$. The stronger green­back has had a neg­a­tive ef­fect on com­mod­ity prices. The JSE’s plat­inum and gold in­dices dropped around 14% while re­sources shed 10%. Lon­min lost 30% to slip be­low the R20/share mark.

The prospect of fur­ther gains for the dollar re­mains a ma­jor head­wind for com­mod­ity prices, says Ju­lian Jes­sop, head of com­modi­ties re­search at Cap­i­tal Eco­nomics. “How­ever, the dollar has al­ready ap­pre­ci­ated a long way and, if it con­tin­ues to climb, much would de­pend on the rea­sons why.” He adds that if the dollar rally is sim­ply re­flect­ing the rel­a­tive strength of the US econ­omy, then prices of oil and industrial met­als should ben­e­fit from re­cov­er­ing global de­mand.

Mer­gence In­vest­ment Man­agers port­fo­lio manager Brad Pre­ston says the price ac­tion on the JSE is not only re­lated to a po­ten­tial Fed rate hike and the re­lated dollar strength.

“For ex­am­ple, SA re­tail­ers and in­ter­est rate-sen­si­tive stocks staged a sharp rally in Jan­uary, driven by the pos­i­tive im­pact lower fuel prices were ex­pected to have on the health of the SA con­sumer and the out­look for in­ter­est rates.

“Given the re­cov­ery off its lows in the oil price, the in­creases to the petrol price an­nounced in the bud­get and the re­cent rand weak­ness, the out­look for do­mes­tic petrol prices has changed very quickly,” Pre­ston says.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.