JSE falls to mid-July low as Fed’s hiking cycle jolts global markets

The JSE fell to its weakest point since mid-July yesterday, mirroring the global trend and signalling the extent to which investors are concerned about the effect of higher interest rates on the global economy.

The all share index lost 1.41% to close at 65,276.97 points, dragged down for the most part by mega-cap industrial shares, notably Richemont and Naspers, which dropped 3.56% and 4.47%, respectively.

As expected, the Reserve Bank hiked rates by 75 basis points to 6.25%, joining the US Federal Reserve, which tightened its policy by the same margin on Wednesday night.

“While the 75 basis points was expected and delivered by the Fed, the pace of interest rate increases is potentially what has market participants continuing to sell equities,” Lester Davids, an analyst at Unum Capital, said.

Capitec, SA’s largest retail bank with more than 18-million customers, lost 3% of its value to close at R1,649.06, the lowest level since August last year, and was the main loser among the banks.

Higher interest rates are generally good for banks as they boost their lending margins.

But there is a risk that evertighter borrowing costs could lead to clients defaulting on their loans.

But even with the latest hike, Bank governor Lesetja Kganyago noted that the repurchase rate was only back to 2019 levels, before the Covid19 pandemic.

The monetary policy committee has been unwinding the record low interest rate that came after Covid-19 struck in 2020.

Life insurers ended mostly lower, as did the listed property sector, but gold shares got a reprieve after days of relentless selling in the sector.