Stocks firm over news that coronavirus cure has been found

SOUTH African stocks held firm yesterday and the rand even touched R14.66 against the dollar during the day on reports that the coronavirus was non-mutating while news out of China was that a cure for the virus had been found.

The FTSE/JSE All Share Index rose 1.07 percent to 57 426.20 points, while the Top40 inched up 1.16 percent on the sentiment, which saw recent delinquents Steinhoff, Tongaat Hulett and Sasol purring along nicely.

Analysts said the recovery in risk sentiment may be based around official efforts to calm virus fears, China’s central bank pumping 1.2 trillion yuan into the economy and the unexpected rebound in US manufacturing overnight. The analysts said China’s welcoming of assistance from the US could sweeten appetite towards stock markets in the near term.

“News that a treatment for the coronavirus has been found made its way to the market this morning, restoring risk appetite and subsequently positive sentiment towards emerging markets,” said Bianca Botes, treasury partner at Peregrine Treasury Solutions. “The rand is responding positively to the news.”

South African bonds shrugged off a sell-off that began at the beginning of the year on fears the country may lose its investment-grade status in March as the economy suffered due to rolling blackouts.

The government stock extended its rally even as the World Health Organisation (WHO) said the coronavirus had not shown signs of mutating.

The WHO also said that the outbreak could be contained.

Non-residents bought the most of the debt on a net basis in 16 months on Tuesday, and the order book at Treasury’s weekly auction was the strongest in five weeks.

Inflows rose to R7 billion, a turnaround from 2019, when foreign investors dumped a net R21.6bn of government bonds.

Research Analyst at FXTM Markets Lukman Otunuga said the rand gained roughly 0.5 percent against the dollar today and more than 1 percent since the start of the week.

Otunuga said there was optimism that the rand could trade towards 14.60 if the mood continued to improve.

“The South African rand stood tall and mighty on Wednesday (yesterday) after reports of an effective treatment for coronavirus boosted risk sentiment,” Otunuga said.

“G10 currencies bowed to the rand, while Asian and other emerging market currencies extended losses despite South Africa’s Standard Bank Purchasing Manager Index disappointing market expectations.”

Investec analyst Annabel Bishop said the recovery could be dependent on oil demand from China.

“Opec and its allies are looking to implement larger quotas to support oil prices,” Bishop said.