SA markets shrug off US challenges

STOCKS on major markets and the US dollar sold off while bond yields fell on Wednesday as investors fled risky assets amid uncertainty about US President Donald Trump’s ability to deliver on his tax and banking reforms and infrastructure spending.

Despite the volatility the selloff in the US shares caused on emerging countries’ currencies, including the rand, South African share markets continued their bullish movement last week.

The news that the International Monetary Fund (IMF) had lifted South Africa’s economic growth prospects for this year from 0.8 percent to 1 percent also boosted share and capital markets.

The IMF expects the country’s inflation rate to dip below the upper limit of 6 percent of the South African Reserve Bank’s target rate during the second part of the year. The IMF is cautiously optimistic that the end of the worst drought in a century will increase agricultural production while rising commodity prices will boost mining.

It seems the IMF does not think that further downgrading of South Africa’s sovereign debt to junk status will have a devastating effect on growth prospects.

The announcement by StatsSA last week that retail sales turned around from the previous six months negative trend and recorded a 0.8 percent growth in March also boosted confidence in local financial markets.

On the JSE, the all share gained 364 points, or 0.7 percent, during last week and is already 7.4 percent higher since the beginning of the year. Financial shares decreased by 1.2 percent for the week, while industrials added 1 percent and resources had a good week gaining 2.6 percent.

In reaction to the volatile rand, property shares dwindled last week as the listed property share index lost 1.9 percent. This index is still 0.5 percent lower than at the beginning of the year.

The rand was quite volatile last week. For instance, it traded at at R13.04 to the dollar last Tuesday and on Wednesday, in the wake of the Trump woes, at one stage traded above R13.63. The unit recovered last Thursday and Friday and at the close of the JSE traded at R13.22.

Against the pound, the rand depreciated by only 3c, or 0.2 percent, to close the week at R17.20 and against the euro, it lost 20c, or 1.4 percent, and traded at R14.80 on Friday afternoon.