JSE surges on China Covid hopes

The JSE rose to a seven-month high on Wednesday as investors bet that China would ease strict Covid-19 measures, but some economists cautioned that this would take longer than expected.

The central Chinese city of Zhengzhou, home to Apple’s biggest iPhone factory, ended a five-day lockdown on Wednesday. Restrictions were also lifted in four Guangzhou districts in the south of the country. Residents in both cities clashed with police in protests against harsh government measures to curb the coronavirus.

News that factory output in the world’s second-biggest economy contracted further in November raised hope of measures being relaxed.

The positive sentiment saw the JSE all share rise 2.32% to 74,828 points — its biggest one-day gain in almost two weeks — boosted by precious metals, which rose 3.26%, resources (2.89%), industrial metals (2.63%), and industrials 2.57%. The top 40 jumped 2.62%.

“Speculative hopes that China was moving towards an easing of strict Covid restrictions amid ongoing protests and growing concerns over its ailing economy saw local risk assets advance,” said RMB economist Siobhan Redford.

“Trade has broadly remained riskpositive, however, even after concerningly weak November economic prints out of China. It appears the market has taken the data in its stride and is increasingly betting that economic weakness will add pressure on the Chinese government to ease its strict Covid-19 stance,” said Redford.

Oanda senior market analyst Edward Moya was less sanguine.

“In the event that China commits 100% to its vaccine drive, the move away from Zero-Covid will take time as the virus spreads rapidly throughout the country necessitating swift action,” he said. “Even the best-case scenario is one of significant turbulence for the world’s second-largest economy next year.”

Federal Reserve Chair Jerome Powell was scheduled to speak at the Brookings Institution at 8.30pm SA time on Wednesday, with investors listening for clues on whether the central bank may slow or even think of ending interest rate hikes.

After four successive 75 basis point increases, the prospect of a 50bps increase at the Fed’s meeting next in December appears stronger.

At 7.24pm, the Dow Jones industrial average was 0.65% weaker at 33,631.53 points, while markets in Europe ended the day firmer.

At 6.59pm, the rand had strengthened 0.26% to R16.953/$, and 0.35% to R17.49997/€. The euro was less than 0.1% weaker at $1.032.