Coronavirus: companies in SA brace for worse
The virus, which continues to spread, unleashes havoc as investors lose appetite for risk in emerging markets
THE RAND continued its downward spiral on Friday, weakening to an 18-month low against the dollar on heightened sentiment and uncertainties around the spread of the coronavirus.
The rand, which has already lost 7.30 percent over the past month due to the turmoil in the currency market, eased 1.15 percent further to R15.56 against the greenback by 5pm on Friday.
It touched the September 2018 high of R15.69 around noon as investors fled to safer assets.
The surge of outbreaks on all continents impacted investors’ risk appetite through the week and fuelled fears that efforts to contain the spread were seemingly failing.
Andre Cilliers, director and currency expert at Treasuryone, said the rand was not taking a knock because of any domestic matters.
Cilliers said that the virus had unleashed havoc in the markets as its spread outside China had increased more than expected.
“It is related clearly to the coronavirus and the changing sentiment from investors moving out of riskier assets, (and) moving out of emerging markets into safe havens markets like the US,” Cilliers said.
“It’s also within the First World countries that riskier assets like the stock exchange is being ignored and sold off in favour of cash investments, hence we see a big move in long-term yields cutting sharply lower, which means that people are moving into bond markets and cash markets.”
Global stock markets spiralled downwards and were set for their worst week since the Great Financial Crisis.
This year, global economic growth is expected to moderate to 3.3 percent, a downward revision of 0.1 percentage point.
FXTM’S senior research analyst Lukman Otunuga said the confirmation that the coronavirus was putting the brakes on South Africa’s largest trading partner could spell another leg down for risk assets.
“If Covid-19 (coronavirus) morphs into a severe pandemic, that could herald a bear market for equities, which is usually accompanied by a recession, although it is not the market’s base case at this point in time,” Otunuga said.
“The sooner the coronavirus outbreak can show signs of stabilising, the greater the potential revival in risk appetite, while allowing a longer runway for momentum in the global economy to be restored in 2020.”
In South Africa, non-residents on Thursday sold a net R9.1 billion of the securities amid concerns about the effect of the crisis on global growth.
This was coupled by worries that South Africa might lose its investment-level rating with Moody’s Investors Service as government debt continues to rise.
Cilliers said market volatility was unlikely to end soon.
“To speculate as to when it will decrease would be speculating as to when the whole situation around the coronavirus is stabilised,” Cilliers said.
“The only thing we can say for certain is that it will stabilise, but as to when it would stabilise is very unclear and very difficult to predict. But for the time being it will increase the volatility.”