LOCAL markets shuddered as a severe bout of global risk aversion knocked the JSE 2% lower in line with other equity markets yesterday, putting heavy pressure on the rand as the dollar rebounded from record lows.

Sharp falls in prices for gold and platinum — two of SA’s key exports — added to the volatility and fanned fears that capital inflows will subside if there is a widespread retreat from emerging markets.

Analysts said the turmoil, sparked by renewed concern that credit market losses would curb global growth, took markets by surprise and might deepen over the next few days.

“It’s all about risk reduction … there is nothing particularly South African in this story but we are looking very exposed,” Absa Capital chief economist Jeff Gable said yesterday.

The euro, the currency of SA’s main trade partner, slid more than 1% against the dollar to $1,4148 after scaling a record high of $1,4348 early in the session, initially buoyed by a Group of Seven statement that did not mention the dollar’s chronic weakness.

The US currency bounced back as markets decided that its losses were overdone, punching the rand 1,6% weaker to R6,93 to the dollar, before it clawed back some lost ground to R6,86 later in the session.

“The market is on a tightrope — sentiment changes so quickly,” said Citigroup senior dealer Julian Wilson. “We’ve seen a dismal performance from the rand; there is not much more room for strength.”

The rand scaled a 16-month peak of R6,68 to the dollar after the Reserve Bank raised its key repo rate half a percentage point earlier this month, but did not manage to sustain a break of the technically important R6,80 level.

Wilson said the local unit was likely to trade between R6,72 and R7,02 to the dollar over the next few weeks — a trend that could prove inflationary and raise the chances of another hike in interest rates later this year.

Local stocks fell for a third day running, with the JSE down 2,01% to 30146,62 — its biggest drop in more than nine weeks. Emerging market stock fell the most since the August sell-off on renewed concern that credit-market losses may stunt demand for exports from developing nations.

Resource shares were hardest hit, as Citigroup downgraded shares of mining companies worldwide and gold tracked oil prices lower — sliding as much as 2,5% to 745,83/oz after scaling a 27-year peak last week.

Shares of Anglo American, the world’s second-biggest mining company, dipped 4,8% to R421,95 after advancing 9,5% in the past six months.

Anglo Platinum, the largest platinum company, slid 5,1% to R1046,03 as prices for the precious metal dropped 1%. SA is the world’s main producer of platinum and gold, which together account for about a fifth of its exports.

The rout in local equities was mirrored elsewhere in Europe and Asia, with the Euro Stoxx 50 index of leading euro- zone shares down 1,32% at 4352,91 points and London’s FTSE 100 down 1,05% to 6459,30 points,

Wall Street steadied after a sharply weaker opening, with the Dow Jones industrial average down 0,31% to 13479,83 while the broad-market Standard & Poor’s 500 index dipped to 1498,96.

Analysts said if global appetite for risk was eroded further, the inflows into SA’s equities and bonds that helped finance the gaping deficit on its current account (a country’s broadest measure of trade) could dry up, and weaken the rand.

SA’s current account gap is already among the biggest in emerging markets at about 6,5% of gross domestic product, and is likely to widen in the third quarter of this year.

Mariam Isa
Johannesburg

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