Geopolitical factors coming to the fore once again?
DESPITE positive world market sentiment last weekend that the US/China trade relations can be normalised and a working trade agreement is on the cards, the picture had changed dramatically since last Tuesday as intensified trade war tariffs and espionage had hit global financial markets.
The arrest of the daughter of the Chinese tech giant Huawei’s founder created havoc among investors in risky assets as any hope of a quick solution to the ongoing trade war between the US and China evaporated.
Together with renewed worries on a hawkish Brexit agreement and fears of a hard landing for world growth, stock markets across the globe have been taking a hiding since Tuesday last week.
In the US, the Dow Jones industrial average index lost 4.3 percent since last Tuesday up to early trade on Wall Street on Friday evening.
Both the DAX in Germany and the FTSE 100 in London had one of their biggest falls for one day this year on Thursday.
The Dax gave up 3.7 percent and the FTSE 100 lost 2.3 percent during the week.
In Hong Kong, the Hang Seng traded down by 4.2 percent, while the Nikkei 225 tumbled by 3 percent.
Emerging market stock also gave up more than 3.5 percent since the previous Friday.
On the domestic front, the Eskom saga of continuing load shedding and a call for government to take over R100 billion of its debt, overshadowed the good news that the economy came out of recession during the third quarter with a growth rate of 2.2 percent.
News that the current account deficit had increased to 3.5 percent during the second quarter and that the grading agency Fitch had decided to keep South Africa’s grading at junk with a stable outlook, also contributed to the volatile movement of share prices on the JSE during last week.
Although the all share index on the JSE had gained 375 points, or 0.07 percent, over the week, the index gained 1 571 points, or 3.1 percent, last Monday and Tuesday, only to lose 1 428 points, or 2.7 percent, last Wednesday and Thursday.
Given the uncertainty over global political and economic developments, as well as the Eskom difficulties, the rand exchange rate came under pressure.
The rand lost 45 cents, or 3.3 percent, against the dollar since last Tuesday and traded at R14.11 to the greenback on Friday evening.
Against the pound, the rand depreciated by 57c, or 3.3 percent, to trade at R14.98 and lost 56c, or 3.6 percent, against the euro on R16.07.
Despite the weaker rand, and higher oil price of $63 (R890) a barrel last Friday, the over recovery for both the prices for diesel and petrol is about 200c a litre during the first week of the month.
It is more than likely that the petrol and diesel prices will come down during the beginning of next month.
Chris Harmse is the chief economist at Rebalance Fund Managers.