Banks take a hit as rand on back foot
Stocks in the financial sector plummeted on Wednesday as investors winced at a weakening rand against the dollar, a drop in consumer confidence and another government bailout for state power utility Eskom.
The financial sector had fallen by 1.7% in late trading, drawing the JSE All Share Index lower by about 1.2%, before regaining ground to 1.44% and 0.74%, respectively.
Bradley Preston, portfolio manager at Cape Town-based Mergence Investment Managers with R31 billion under management, attributed the drop to the government’s payment of an additional R5 billion to utility Eskom on April 19 and a stronger dollar that’s weakened the rand.
The local currency “walked into a storm” on Tuesday, said Andre Botha, senior dealer at TreasuryONE, in a note. He said the news of Eskom, coupled with the US imposing sanctions on oil from Iran and better than expected US data and earnings reports from Wall Street, contributed to rand weakness.
Preston said that local banks are offshore investors’ favoured play in South Africa at the moment so they’ve picked up a lot of correlation to the macroeconomic news. “It used to be the retailers a few years ago, but it’s shifted to the banks.”
South Africa has the continent’s most developed financial system, attracting foreign investors. But the rand, which fell to 14.43 against the dollar from 14.27 early on Wednesday, has been volatile as a national election approaches on May 8 that could undermine President Cyril Rampahosa’s planned reforms, even if he wins as expected.
Also, additional funding for Eskom creates an image of a government that remains beholden to a utility that’s resorted to rolling blackouts to juggle a fleet of power plants that need repair, while mired in corruption allegations following numerous government probes.
The government already pledged a R69 billion bailout of the utility in February to be paid over three years. Even then, questions remain about the utility’s long term sustainability.
Source: moneyweb.co.za