SA financial markets end week strongly

SOUTH African financial markets moved into positive territory last Thursday and Friday after three days of geopolitical uncertainty due to the junk downgrading sword over the country’s head, as well as poor performances on global markets, as energy prices, especially the oil price, tumbled.

The announcement last Friday by President Jacob Zuma that the government would likely finance a free tertiary education, was not received well by international and local investors during the beginning of last week.

The possibility that other important areas like social grants could suffer severely if more funds were channelled into education, or that it would push government debt up to almost unbearable levels, saw the rand fall to around R14.50 to the dollar and R17.02 against the euro.

At the same time, the R186 Government bond lost another 20 basis points to trade at levels higher than 9.5 percent.

Share prices also underwent a substantial downward correction during the beginning of the week. The all share index lost almost 700 points, or 1.1 percent, up to last Wednesday.

The release of the Heher Commission of Inquiry to Higher Education Fees Report on Tuesday, however, calmed investment sentiment. Together with better than expected retail data from the US and South Africa, the rand and share prices started to recover strongly, in line with other emerging markets.

The news of a possible change in the Zimbabwean government also gave new momentum to the rand and share prices.

The rand recovered strongly last week. It gained 33c (2.2 percent) against the dollar and traded at the close of the JSE on Friday at R14.04 to the greenback, its strongest level in nearly three weeks.

Against the pound, the currency had appreciated by 46c (2.4 percent) last week and traded at R18.48 on Friday evening. Against the euro, the rand had strengthened by 20c over the week and was on Friday evening at R16.54, or 1.2 percent stronger.

Given the more favourable domestic and global market sentiment, the all share index closed Friday on a new high of 60 128.41 points.