Local stocks plunged to the lowest in more than one-year yesterday as another wave of volatility fuelled a risk sell-off sentiment in the markets on the back of a looming recession in Europe.
This as the Bank of England was forced to step in with a £60 billion (R1.1 trillion) buy-up of UK government debt to prevent “material risk” to UK financial stability and stop a potential mass collapse of pension funds.
The JSE All Share Index fell by more than 2% during early trade yesterday to 62 294 index points, its lowest since January 2021, and down from a previous close of 64 025 points on Tuesday. It later closed at 63 808.32 points, 0.34% lower.
Almost all sectors were trading in the red on the JSE, led by resource-linked shares, financials and tech companies as local stocks joined a global sell-off driven by mounting recession fears due to higher and faster interest rate hikes.
By 4pm, African Rainbow Minerals had fallen by 11.7% to R233.95 per share, followed by Exxaro Resources, which was 7.6% down to R200.96 per share, while Remgro and Bidvest eased by 3.8% and 3.4% to R133.34 and R207.08 per share, respectively.
Stocks slumped early yesterday amid the bond carnage as rate hike worries are the chief driver of the losses.
South Africa’s own central bank has also taken a hawkish turn, raising interest rates by 75 basis points for the second time in this quarter and taking its benchmark policy rate to 6.25% despite inflation moderating to 7.6% in August due to lower petrol prices.
Old Mutual Wealth Investment Strategist Izak Odendaal said the highly uncertain macro environment had implications for asset allocation.
“The most important consideration is that we are now firmly in a higher-for-longer global interest rate environment, a stark contrast compared to the decade before the pandemic,” he said.
“Markets are forward-looking and after a 20% decline a degree of economic weakness is already priced in. We are just not sure if the full extent is already discounted. Consensus company earnings are still forecast to show reasonable growth, but typically fall in a recession.”
The market is now positioning itself for a global recession in 2023 after the International Monetary Fund, the World Bank and the Organisation for Economic Co-operation and Development all revised downward their global forecasts.
Major economies in Europe are facing a difficult economic climate mainly due to the ongoing energy crisis, forcing major cities to turn off their lights in a bid to conserve electricity as energy prices in Europe soar.
A series of unusual leaks in gas pipelines running from Russia under the Baltic Sea to Germany has triggered concerns about sabotage and paints a bleak picture for the upcoming winter in Europe.
This has pushed the euro to touch a fresh 20-year low in relation to the US dollar as the Federal Reserve’s hawkishness and the currency’s safe haven appeal has been increasing its dominance of the foreign exchange markets over the last few months.
ActivTrades senior analyst Ricardo Evangelista said the euro continued to languish in relation to the almighty dollar despite the European Central Bank’s recent shift towards a more assertive posture regarding the need to control inflation and tighten monetary policy.
“The war in Ukraine presents many risks for the old continent, and the recent escalation related to the sabotage of the Nord Stream pipelines, it appears that Europe may be about to face a very difficult winter,” Evangelista said.
“Against this background further euro weakness may be on the cards.”
Meanwhile, the rand yesterday stumbled against the greenback and started the day at R18.13 against the dollar before strengthening and dipping below the psychological R18 mark. By 5pm it was trading at R17.93 to the dollar, 1 cent stronger from the same time the previous day.
The rand has been weakened by the ongoing power crisis in South Africa, among other factors, as Eskom yesterday said it would continue implementing Stage 3 and Stage 4 load shedding until Saturday.
BUSINESS REPORT