The cracks are beginning to show
Global investors had a torrid month in August after China devalued its currency on August 11, sending jitters across global markets. Fears about a possible US interest rate hike on September 17, volatile Chinese markets and an economic slowdown weighed on the JSE.
August saw the JSE all share index trade to its lowest level since October 2014 as market volatility peaked to yearly highs.
The JSE all share retreated 4% in August, the Dow Jones industrial average in the US shed 6,57% in the month and the Chinese Shanghai composite plummeted 13,42%.
The slump in the Shanghai composite index followed after the Chinese Central Bank devalued the yuan by 2%. Chinese authorities then stepped in to stop the market rout with monetary stimulus measures, leading to calmer global markets.
On the local market the broader resources, industrial and financial sectors all declined in August. The resources index was the outperforming sector, dipping only around 1%, while the financial and industrial indices fell around 4% and 5% respectively.
IG SA market analyst Shaun Murison says the all share index did finish the month well off the August lows to erase more than half of the losses realised at the worst point of the month. However, cracks in the market are starting to show and September so far sees losses in equity markets continuing.
On the local currency front, the rand fell nearly 5% against the dollar over the period as emerging market currencies suffered the effect of risk aversion as global sentiment waned.
Macquarie Group economist Elna Moolman says the economic contraction in SA in the second quarter of 2015, revealed in August, was an alarming warning signal that SA will not escape the weakness in the global economy and specifically global commodity prices and demand.
This prompted abrupt sell-offs in many commodity and emerging market currencies, including the rand, which is in turn fuelling concerns about inflation pressures in SA that might compel the Reserve Bank to hike interest rates again despite a weak growth prognosis.
Meanwhile most global stock markets fell last Friday after the US Federal Reserve decided on September 17 to keep its interest rates steady.
The Fed left short-term rates unchanged due to concern about weakness in the global economy and market volatility.