The cracks are be­gin­ning to show

Financial Mail - Investors Monthly - - Contents - Madeleine van Niek­erk

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.

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