Relief rally as risk appetite returns

THE JSE yesterday clawed back some of its losses from the past two weeks but the embattled rand remained under pressure against a stronger dollar.

SA and emerging-market stocks staged their biggest threeday gain since October as risk appetite got a boost from the US Federal Reserve’s (Fed’s) assurance that further interest-rate increases would be gradual.

The run-up to Wednesday’s decision had been punishing for emerging markets, with stocks losing almost $5-trillion in value since June and currencies heading for the worst year since 1997. A slowdown in China and tumbling commodity prices worsened the meltdown.But yesterday most had a “relief rally”.

The JSE all share, after two punishing weeks since a downgrade of SA’s credit rating outlook and turmoil sparked by the firing of former finance minister Nhlanhla Nene, rose 2.64% to 49,706.3 points from its close at 48,428.8 on Tuesday.

The rand weakened against the dollar after the long expected though modest rise in the US federal fund rate also lifted the dollar to a two-week high against a basket of currencies.

By the close of local trading, the rand had weakened 2.04% to R15.2395/$.

While markets anticipated

the 25 basis-points rate hike by the Fed, the rand still suffered, put under pressure by Moody’s adverse credit rating announcement late on Tuesday.

“The dollar has now started to see renewed strength, which, combined with Moody’s negative credit rating announcement and lingering investor uncertainty in the wake of President Jacob Zuma’s surprising Cabinet reshuffle suggest that the rand is likely to remain on the back foot on to year end,” said Barclays Africa analyst Kate Rushton.

The dollar surged to the highest in data going back to 2005 as the Fed’s divergence from other central banks boosted the greenback. Metals tumbled as higher rates damp their attractiveness versus assets that pay interest, while oil traded below $35 a barrel in New York

The JSE rallied across most of the important sectors yesterday, including the foreign-investor sensitive banking and retail property sectors.

The biggest gainer on the JSE was the banking sector, rising 3.71% from Tuesday’s close, closely followed by financials, which added 3.43%. These gains came despite the Moody’s report.

The banking sector lost 2.83% after the Fitch and Standard and Poor’s action downgrades two weeks ago, then crashed 13.52% the day after Mr Zuma replaced Mr Nene with the relatively unknown Desmond van Rooyen as finance minister and slid another 5.81% the next day.

The gold mining sector was weighed down by AngloGold Ashanti and to a lesser extent, Gold Fields, while Harmony, Sibanye and Pan African Resources all posted gains.

A stockbroker at Afrifocus Securities said yesterday the rally was the result of a positive reaction to the Fed’s announcement. The relief rally overnight in turn saw bonds overcome weakness after the Moody’s announcement.

“The rand behaved well,” the broker said, “but we have to remember that today is also futures close-out for the final quarter of the year.”

Late in the day bonds were steady at firmer levels. The benchmark R186 was bid at 9.250% and offered at 9.285% from Tuesday’s close of 9.500%. The middle-dated R207 was bid at 8.690% and offered at 8.725% from 8.935% previously. With