SA markets reel on world turmoil

SOUTH African markets ended sharply weaker on Friday, capping a roller-coaster week for stocks and the rand.

The All Share index slid 2.33% to 50 294.70 points but still ended higher on the week, during which businessman Donald Trump swept to victory in the US presidential election, sending world markets into a frenzy.

“The lesson South African investors need to take from this week is that while local political shenanigans occupy our thoughts, it is often what happens globally that will influence our markets more violently and abruptly,” said Caroline Cremen, portfolio manager at Adviceworx, a member of Old Mutual Group.

Price action in both the stock and currency markets was sharp and fierce in both directions.

Investors had gone to the polls on the assumption that Democrat Hillary Clinton would prevail, which implied the continuation of the status quo. But they were caught wrong-footed in a way that echoed the Brexit vote in June.

The dollar has been one of the big beneficiaries of the looming Trump presidency, but emerging-market currencies such as the rand lost out substantially.

Analysts have traced the slide in those currencies to Trump, who has advocated increased fiscal spending, which could push inflation a lot higher, resulting in higher interest rates than initially projected.

“Immediately after the US poll shock, there was an assumption that, due to the negative market effect of the Trump win, a US interest rate increase would only happen in the new year,” Cremen said. “Less than 24 hours later, after the Dow climbed to a new record, this assumption was flipped on its head, and the rand has been one of the unfortunate [victims] of this abrupt change in opinion.”

The strong dollar also negatively affected some commodities, particularly the gold price, which, in turn, weighed heavily on gold stocks. Diversified miners bucked a weaker trend, thanks to a powerful rally in copper and iron prices.

AngloGold Ashanti, Sibanye Gold and Harmony lost 12%, 11% and 17% respectively on the week, but Anglo American rose 14% and BHP Billiton 18%.

Pressure continued to build on retailers, exacerbated by the weaker rand, which slid to lows of R14.47/$ on Friday, from highs of R13.17/$ earlier in the week. Lewis Group led the decline in the sector, down 13%.