Strong re­cov­ery for SA’s fi­nan­cial mar­kets

The Mercury - - BRFOCUS -

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.


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