JSE, rand roiled by China risks, soaring dollar and poor prospects

Currency has already lost 7% over the past two weeks, now at R15.75 to the dollar

THE RAND continued a two-week slide yesterday, falling 2.27 percent to the dollar, while JSE prices slumped more than 3 percent, after global investors sought safer havens amid uncertainty about the global growth outlook and lockdowns in China, while the dollar soared.

By 5pm the rand was bid at R15.75 against the dollar, 17 cents lower than at the same time the previous day. The all share index ended the day 3.48 percent lower at 69 750.67 points, while the Top40 index slid 3.81 percent to 62 895.89 points.

The rand had already lost 7 percent over the past two weeks. Perceptions of aggressive interest rate hiking in the US due to rising US inflation – it increased by 60 basis points in March to 8.5 percent, the highest since December 1988 – lower than expected global growth, weakening commodity prices and worsening Covid-19 cases in China have all created negative sentiment around emerging market currencies, analysts said.

Meanwhile locally, the rand has been impacted by concerns about the South African economy, severe power cuts by Eskom, and devastating floods that have caused more than R10 billion of damage to infrastructure in KwaZulu-Natal.

Investec chief economist Annabel Bishop said the negative impact to South Africa’s trade balance over April from the floods in KwaZulu-Natal, and disruptions to exports, would have had a “particularly negative effect” on the domestic currency, along with lower commodity prices. The large trade surplus had previously been a key rand support. Both the World Bank and International Monetary Fund had cut global growth forecasts by close to 1 percent year-on-year, she said.

Vestact Asset Management CEO Paul Theron said local stocks fell as part of an “overflow” of factors that drove investment sentiment lower on the JSE last week.

These factors included perceptions of aggressive rate cutting by the US Federal Reserve, concerns about the expanding Covid-19 pandemic in China, and slipping prices for commodities such as gold and oil.

Theron, however, advised investors to “keep calm” through the market turmoil, and said he believed that perceptions of aggressive interest rate increases in the US were “not well supported”.

Reuters reported that other emerging market currencies have also come under pressure. The bearish sentiment extended to other emerging market equities, with, for example, China stocks touching 23-month lows yesterday.

The MSCI’s index for emerging market stocks fell 2.4 percent lower in its worst one-day percentage fall since mid-March