South African stocks traded lower for the fifth consecutive day yesterday, weighed down by choppy global risk sentiment and domestic weak economic outcomes triggered by intensified load shedding.
The JSE All Share index fell by 1.7% to more than a two-month low of 75 126 points, the fifth consecutive session of losses in line with major bourses.
Contagion fears in the financial sector remain after US authorities stepped in to cap the fallout from the sudden collapse of Silicon Valley Bank (SVB), while traders reduced bets that the Federal Reserve will take a less aggressive monetary path.
SVB is the largest US bank to have failed in over a decade. Its collapse added to worries that the already tighter lending environment and the upwards interest rate cycle could cause other banks to pull back on lending to start-ups and small and medium-sized enterprises.
Global equity markets plummeted last week, with a barrage of conflicting signals and worrying developments.
US Federal Reserve (Fed) chairman Jerome Powell’s hawkish testimony to the US Congress sparked fears of a return to the aggressive pace of monetary policy tightening that dominated 2022.
The Fed chair noted that another jumbo-sized rates hike might be needed to set inflation on a sustained downwards path towards the 2% target, as the economy and the labour market remained far too robust to meaningfully subdue price and wage pressures.
Domestically, the South African Reserve Bank is anticipated to either hold the interest rate this month or raise it by just 25 basis points, as further hikes could harm the struggling economy.
South Africa’s annual headline inflation rate eased for the third straight month to 6.9% in January from 7.2% in the prior period, though it is still above the upper limit of the central bank’s target range of 3% to 6%.
Meanwhile, the rand gained 0.8% to R18.19 to the dollar, moving away from an over two-year low as the greenback weakened sharply after the turmoil in the US banking sector reduced expectations of a larger rates hike by the Fed.
The rand weakened over last week, reaching R18.73 to the greenback as risk sentiment elevated on the collapse of the SVB Financial Group as a run on the bank saw it unable to remain in business.
Investec chief economist Annabel Bishop said the rand was under pressure from the market risk aversion and ratings agencies unified in downgrade risk of load shedding.
“The rand has settled just above R18/dollar, heavily undervalued on both high risk aversion in global financial markets, and particularly negative investor sentiment against SA on its worsening growth outlook as its productive capacity deteriorates,” Bishop said.
“South Africa’s worsening electricity crisis came at a poor time against the backdrop of material risk off sentiment in global financial markets, while load shedding also adds to the cost environment, with SA’s inflation still high, weakening the rand,” she said.
BUSINESS REPORT