The rand lost more ground in mid-morning trade on Wednesday, suggesting an element of foreign selling of local assets.The effect was more pronounced in JSE-listed banks and insurance stocks, as well as big industrial stocks.
BP Bernstein Stockbrokers trader Vasilis Girasis said investors were abandoning emerging markets in general, after some of the key gauges reached the so-called bear-market territory — defined as a drop of 20% or more from the peak. China’s Shanghai Composite crossed that line, suggesting that more selling could be on the cards.
“The market is now trading below support levels and we could possibly see more selling pressure [in the] short term,” said Girasis, referring to the JSE.
“Investors [are] abandoning emerging markets in droves. Unpleasant,” said David Shapiro, deputy chairman at Sasfin Securities in a tweet.
The weaker JSE market played out negatively for the rand, which was on track for its worst monthly decline against the dollar since May 2016, according to Iress data. The rand has largely been the victim of external drives, though a disappointing round of domestic economic data added to its weaker tone.
The prospect of a trade war pushed the rand to nearly R14 to the dollar last week, raising inflation worries, though some economists argue that the link between a weaker rand and inflation is not as powerful as in other emerging markets.
“The available figures suggest that rand fluctuations tend not to have a big effect on domestic prices. This historical relationship between movements in the rand and domestic inflation is weak,” said John Ashbourne, senior emerging-markets economist at Capital Economics in an e-mailed note to clients.
“The currency weakened sharply, for example, in 2014 and in 2017, while inflation eased in both years. Indeed, the correlation between currency moves and domestic inflation is significantly weaker in SA than in other emerging markets, such as Egypt or Brazil.”
The pressure on the rand also came via a strong dollar amid expectations that the US Federal Reserve will forge ahead in its interest-rate hiking cycle.
Local bonds were steady in mid-morning trade, with a slightly weaker bias. The yield on benchmark R186 was at 8.915% from 8.880%.
At 11am, the rand was at R13.6827 to the dollar from R13.5372, R15.9089 to the euro from R15.7711, and R18.0519 to the pound from R17.8985. The euro was at $1.1627 from $1.1650. – BusinessLive