Rand and local market get an advance dose of virus
● With no end in sight to the spread of the coronavirus, volatility in the rand — which is among global currencies that have weakened sharply this week — is expected to continue.
André Cilliers, director and currency expert at TreasuryONE, said on Friday: “R16 [to the dollar] is becoming very possible.”
But with the extreme volatility, the currency could also just as easily swing back to its previous, more positive levels. “It is driven purely out of news alerts coming out about the coronavirus,” Cilliers said.
China has reported nearly 80,000 cases in the two months since the outbreak began, with 2,791 deaths so far, according to the World Health Organisation’s latest figures. Forty-nine other countries have reported 4,351 cases and 67 associated deaths.
Cilliers said a decision by the government earlier this week to repatriate South Africans in Wuhan “brings a possibility of an outbreak closer to the shores of South Africa”.
By Friday evening the rand had lost 7.5% over the past 30 days, with the Russian rouble and Brazilian real among other emerging-market currencies also weakening.
About 90% of the impact on the rand and the local stock market was due to panic over the virus, overtaking ratings agencies’ negative responses to finance minister Tito Mboweni’s budget on Wednesday.
Oil prices declined for a sixth day on Friday, hovering at around $49.82 a barrel in late afternoon trade.
Gold gained as a safe-haven investment as investors retreated from riskier assets.
The JSE closed in the red on Friday, dragged down by losses in banking, retail and platinum sector stocks. Over the week, the all share index was down 10.9%.
Retail stocks received a brief boost from the budget on expectations that no tax hikes would stimulate consumer spending and boost economic growth. But by the end of trade on Friday, TFG and Mr Price Group were down 3.8% and 6.6% respectively.
Woolworths and Shoprite have warned that the virus will negatively affect their supply chains and sales.
Shoprite expected an impact of up to R100m and is sourcing some stock from other countries, such as the Ukraine, Poland, Bangladesh, India and Turkey.
“What is impacted are our winter goods, like electrical blankets, heaters — because they haven’t started manufacturing yet and that means, if they start today, it will be too late for the season,” said Shoprite CEO Pieter Engelbrecht. “We have sourced alternative products as far as we could, and that’s why I say the impact as yet is not material.”
Han Tan, market analyst at FXTM, said global markets were headed for their worst week since the crisis of 2008/2009. “Equity investors have finally been jolted into action after weeks of seemingly paying little heed to the warnings about the coronavirus potential to negatively impact earnings.”
He said China’s February PMI data could serve as the next marker for risk sentiment. Confirmation that the coronavirus is putting the brakes on the world’s second-largest economy could spell another leg down for risk assets, “while better-than-expected data may deflate some of the selling pressure”. — Additional reporting by Ntando Thukwana