Global stock heads for worst week since 2011

Weekend Argus (Sunday Edition) - - OPINION - Marc Jones

A FOUR per­cent drop in Chi­nese shares dealt reel­ing world stock mar­kets a fresh blow on Fri­day, as nerves about ris­ing bor­row­ing costs and soar­ing volatil­ity put them on course for their worst week since the height of the eu­ro­zone cri­sis.

Euro­pean bourses saw rel­a­tively mi­nor early losses but China’s overnight plunge had gouged at con­fi­dence again af­ter the sec­ond 1 000-point loss of the week for the US Dow Jones In­dus­trial had sent it into of­fi­cial cor­rec­tion ter­ri­tory.

Cap­i­tal flow fig­ures also showed a record $30 bil­lion (R362bn) had been yanked out of stocks dur­ing the rout, though even af­ter that Bank of Amer­ica’s closely fol­lowed “Bull & Bear” in­di­ca­tor was flash­ing red and warn­ing in­vestors to sell.

“Af­ter the moves ear­lier this week mar­ket in­vestor sen­ti­ment is frag­ile and be­cause of this we aren’t ex­pect­ing the mar­kets to im­me­di­ately start mov­ing higher once again,” said JP Mor­gan As­set Man­age­ment global mar­ket strategist Kerry Craig.

“But given that US mar­kets are now in cor­rec­tion ter­ri­tory – with a 10 per­cent drop since the mar­ket peak in Jan­u­ary – it’s likely that the most se­vere gy­ra­tions will hope­fully have passed,” he added as US fu­tures turned higher.

There was lim­ited re­ac­tion as the US gov­ern­ment stag­gered into an­other shut­down af­ter law­mak­ers failed to meet a fund­ing deal dead­line, but it did play into many of the over­ar­ch­ing mar­ket con­cerns that have taken hold this month.

The yield on bench­mark 10-year US Trea­suries, which tends to be the driver of global bor­row­ing costs, was hov­er­ing at 2.86 per­cent just short of Thurs­day’s peak and Mon­day’s four-year high of 2.885 per­cent.

Europe’s main­stay – Ger­man Bunds – were barely budg­ing too at 0.70 per­cent, as their re­cent rise in yields left them flirt­ing with an­other weekly rise, which would mark their long­est run of weekly gains in 16 years.

Higher yields are seen hurt­ing eq­ui­ties as they in­crease loan costs for com­pa­nies and ul­ti­mately con­sumers.

They also present an al­ter­na­tive to in­vestors who might re­al­lo­cate some funds to bonds from eq­ui­ties.

On top of pres­sure from the drop in global shares, Chi­nese eq­ui­ties had also been hurt by traders clos­ing po­si­tions be­fore the Lu­nar New Year hol­i­days which be­gin this week.

The Shang­hai Com­pos­ite In­dex had tum­bled as much as 6.0 per­cent to its low­est since May last year, and the blue chip CSI300 in­dex dived as 6.1 per­cent.

Both in­dexes had pruned the losses to just over 4 per­cent by the time they closed, but it was their largest sin­gle-day losses since Fe­bru­ary 2016.

Frank Ben­z­imra, the head of Asia eq­uity strat­egy at So­ci­ete Gen­erale in Hong Kong, said he was neu­tral on China eq­ui­ties due to two con­cerns: val­u­a­tions on China-con­sumer-re­lated in­dus­tries and ex­e­cu­tion risks on delever­ag­ing, es­pe­cially fi­nan­cial delever­ag­ing.

Ja­pan’s Nikkei had also shed 2.3 per­cent, en route to a weekly loss of 8.1 per­cent – its biggest since Fe­bru­ary 2016 too.

For MSCI’s broad­est in­dex of world shares, the 47-coun­try ACWI the slump was 6.2 per­cent, which as long as it is more than 6.1 per­cent when US mar­kets close later will be the biggest loss since Septem­ber 2011.

At that point, mar­kets were be­ing slammed by wor­ries about Greek debt de­fault and a col­lapse of the eu­ro­zone.

The Fed­eral Re­serve was also start­ing one of its mass bond-buy­ing pro­grammes.

“The cor­rec­tion phase in eq­ui­ties could last through Fe­bru­ary and pos­si­bly into March,” said se­nior strategist Masahiro Ichikawa of Su­mit­omo Mit­sui As­set Man­age­ment in Tokyo.

In cur­ren­cies, the dol­lar edged up 0.2 per­cent to 108.985 yen, af­ter slip­ping 0.5 per­cent overnight.

For the week, it was on track to lose 1.5 per­cent against its Ja­panese peer amid risk aver­sion in broader mar­kets.

Oil was still slippy with US crude fu­tures down 1.1 per­cent at $60.53 per bar­rel af­ter hit­ting a seven-week trough of $60.27 on Thurs­day.

Brent crude fell for a sixth con­sec­u­tive day too, to 0.7 per­cent to $64.37 per bar­rel.

As well as all the global mar­ket un­cer­tainty, there are signs that sup­plies could be go­ing up again af­ter Iran an­nounced plans to in­crease pro­duc­tion and data showed US crude out­put hit­ting record highs.

Met­als took an­other maul­ing too. Bell­wether in­dus­trial me­tal cop­per was on course for its worst week of the year so far, hav­ing dropped back be­low the $7 000 a ton mark that had be­come some­thing of a sup­port crutch. – Reuters THE JSE closed the week at its low­est level in more than four months, with the all-share in­dex shed­ding more than 1 200 points since Mon­day.

Me­dia group Naspers led the rout, go­ing down more than 10 per­cent and leav­ing the shares un­der the R3 000 mark for the sec­ond time since last Au­gust 23.

Sean Ash­ton, the chief in­vest­ment of­fi­cer at An­chor Cap­i­tal, said Naspers has had a dif­fi­cult few months.

“Mar­ket heavy­weight Naspers, which ac­counts for 20 per­cent-plus of the JSE’s to­tal mar­ket cap, had a less-than-stel­lar Jan­u­ary – down 2 per­cent mon­thon-month,” Ash­ton said.

Naspers closed 1.8 per­cent lower at R2971 on Fri­day, tak­ing with it the All Share In­dex which hit 1.29 per­cent to close at at 55902.63. The blue-chip top 40 in­dex shed 1.39 per­cent at 49287.45.

David Shapiro, deputy chair­per­son at Sas­fin Se­cu­ri­ties, said the global sell-off has largely af­fected the lo­cal bourse.

“The mar­ket plunge we’re see­ing is more about de-gear­ing or delever­ag­ing by traders who overex­tended them­selves in risk prod­ucts, not eco­nomic fun­da­men­tals,” Shapiro said.

South Africa’s eq­uity re­turns were ro­bust in the fourth quar­ter of 2017, with gains recorded across sec­tors. How­ever, the op­ti­mism was quickly tem­pered by a sell­off in global bonds last week, re­sult­ing in ris­ing bond yields and falling share prices.

The sell­off 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.

Faster wage growth could re­sult in higher in­fla­tion and there­fore speed up the Fed­eral Re­serve grad­ual in­ter­est rate hik­ing cy­cle.

Izak Oden­daal, an in­vest­ment strategist at Old Mu­tual Multi-Man­agers, said lo­cal eq­ui­ties are also buck­ing the global trend so far this year, with the JSE pretty much flat.

“Naspers was down 2 per­cent in Jan­u­ary, but its 20 per­cent-plus weight in the share­holder Weighted in­dex has a mas­sive im­pact on the in­dex,” Oden­daal said.

“De­spite the Naspers loss, in­dus­tri­als were marginally pos­i­tive in Jan­u­ary as con­sumer goods (Richemont), gen­eral in­dus­tri­als, re­tail­ers and tele­coms posted good gains.”

PHOTO: SIMPHWE MBOKAZI/AFRICAN NEWS AGENCY (ANA)

Nkosi­nathi Baleni and Mashudu Malema look on as mar­ket jit­ters con­tin­ued this week.

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