SA markets at mercy of geopolitical factors

FILE PHOTO: A worker sweeps in front of the Johannesburg Stock Exchange (JSE)

JOHANNESBURG – Global geopolitical factors continued to bring about uncertainty, volatility and big sell-offs on the South African markets during the first part of last week. This had put the rand under pressure, as the currency depreciated against the major currencies.

The political turmoil in Italy that started last Monday, as well as the uncertainty that prevails around the US-China trade negotiations, as well as the upcoming US-North Korea summit, had hit global risk appetite hard, stoking a sell-off in emerging market currencies and stocks as investors turned towards safe-haven assets.

On Wall Street, the Dow Jones industrial avarage, however, managed to recover strongly on Friday afternoon and at the close of the JSE was trading on 24616 points. This was, however, still 165 points or 0.7percent lower than the previous Friday.

On the JSE, shares also recovered strongly last Thursday and Friday in light of mostly an overreaction of investors. The news that the producer price inflation had increased less than expected from 3.7percent in March to 4.4percent in April, as well as increases in the rand value of commodities, also helped to change investor confidence.

The weaker currency boosted rand hedging stocks and especially resources shares had gained strongly at the end of the week.

The all share index on the JSE gained about 3percent last Thursday and Friday and closed the week on 57282 points, or 0.6percent higher than the previous Friday. The index, however, still recorded a loss of around 2percent during May.

Listed property shares also recovered strongly, gaining 1.24percent on Friday. Bond rates currently reflect the negative global sentiment against emerging markets as the R186 Government bond on Friday afternoon had traded on 8.61percent, up 1.9percent from the previous week.

Meanwhile, given the under-recovering levels of fuel prices due to the higher international oil price and the weaker rand, the Central Energy Fund on Friday announced a sharp increase in fuel prices. The price for both grades of petrol 93 and 95 will increase by 83cents a litre and that of diesel by 85c a litre from Wednesday.