Market rout as UK goes the other way

SOUTH African markets fell sharply on Friday after British voters decided in a referendum to leave the EU in a move that rattled world markets.

The deep sell-off in the currency, equity and commodity markets prompted reaction from some of the world’s largest central banks, notably the Bank of England, which committed itself to help stabilise the UK financial sector.

The BoE said it “stands ready to provide more than £250-billion (R5-trillion) of additional funds through its normal facilities”.

Finance Minister Pravin Gordan said the National Treasury and the Reserve Bank were monitoring the UK developments.

The rand suffered its biggest intraday drop against the dollar in nearly a decade as it fell by up to 8.7% to R15.67/$ before bouncing back to R14.87/$ in late-afternoon trade.

In the lead-up to the vote, investors had priced in an outcome of Britain staying in the 28-nation bloc. But the final vote went in the opposite direction, which triggered a stampede out of assets that are deemed risky, such as shares.

The JSE All Share index felt the squeeze as investors sold stocks across a range of sectors, including financials and industrials.

The index settled 3.56% weaker at 51 679.70 points, completely reversing the hefty gains preceding the UK vote.

The referendum “creates a huge amount of uncertainty with regards to the future of the EU membership”, said IG South Africa senior market analyst Shaun Murison.

“Markets question whether this is just the first step in an unravelling of the greater EU. France’s National Front political party has already been vocal about calling a referendum to determine France’s future within the union.”

As investors fled risky assets, they found cover in the gold price and the Japanese yen because of their safe-haven qualities.

The higher gold price and a weaker rand helped gold miners, which bucked the trend by rallying 11% on the day.