Strong recovery for SA’s financial markets
SOUTH African financial markets last week enjoyed one of their best recovery weeks of the past year.
Global and domestic positive market sentiment boosted share prices and led to a stronger rand and bullish bond rates.
This recovery came despite a fall in the SA Chamber of Commerce and Industry business confidence index to 95.2 last month, from 96.1 in November. South African stocks rose sharply last week, in line with other emerging markets share prices.
This bullish sentiment emerged as hopes for a US-China trade agreement improved and in reaction to the US Federal Reserve chairperson Jerome Powell’s dovish remarks on US interest rates.
Investors across the globe took heart on news that Chinese Vice-Premier Liu He was likely to visit the US later this month for trade talks.
Together with sentiment that US interest rates will rather remain at their current levels with an outlook for lower inflation lower long term bond rates of less than 3 percent and strong economic growth in 2019, appetite for emerging markets assets flourished last week.
Net buying of domestic shares and bonds boosted their prices and as a result the rand steadily appreciated with far less volatility.
On the JSE, almost all indices recorded strong increases last week as well as over the year-to-date period.
The all share index jumped by 1 451 points, or 2.8 percent, and is now 1.7 percent higher than at the beginning of the year.
The JSE Top40 gained 1 341 points, or 2.9 percent (1.6 percent year-todate) with financials that had increased last week by 2.7 percent.
The Resources 10 index traded 2.2 percent higher, while the Industrial 25 board improved by a very healthy 3.4 percent.
Listed properties also were in demand and the index gained 1 percent.
The rand exchange rate moved quite stable on stronger levels last week. The rand gained 7 cents, or 0.5 percent, to trade at R13.87 to the dollar on Friday afternoon. The rand later gained to close at R13.8405 to the dollar on Friday.
Against both the pound and the euro, the local currency almost did not change over the week with the pound trading at R17.76 and the euro at R15.92.
This week, investors will await the outcome of the first meeting for 2019 of the Monetary Policy Committee (MPC) of the SA Reserve Bank.
The interest rate decision of the MPC will be announced on Thursday. It is expected that the MPC will keep the repo rate unchanged on 6.75 percent.
Despite the strong increase in the oil price by more than $3 (R41) a barrel last week, the stronger and stable rand/ dollar exchange rate contributed to keep the current prices for both diesel and petrol over recovered.
Figures from the Central Energy Fund showed that by last Thursday the price for diesel was 53 cents a litre over recovered and that for petrol 95 and 93 by 24c. Over recovering implies that the prices are likely to decrease during the beginning of February.
Chris Harmse is the chief economist at Rebalance Fund Managers.