SA’s stocks crash as government scrambles to limit spread of virus

As SA’s stock markets crashed to their biggest intraday loss to date, officials scrambled to implement the drastic measures announced by President Cyril Ramaphosa on Sunday night to curb the spread of Covid-19.

The measures, including the closure of land and sea ports, the revoking of visas from high-risk countries — some of which have been among the country’s biggest sources of tourists and foreign direct investment – will likely have a severe effect on an economy that slipped into a recession in late 2019.

The rapid spread of the coronavirus infection since it emerged in China in December has rattled global stock markets, disrupted supply chains and seen countries impose tight curbs on people’s movements to try and slow transmissions and lessen the effect on their health systems.

The JSE’s all share index sank more than 12% at one point, according to Bloomberg , while a tumble by the country’s 10-year bonds, a key measure of foreign investors’ willingness to lend to the government, pushed yields to the highest since 2008, when the global financial crisis was nearing its peak. Bond yields move inversely to the price.

Bond yields

The surge in bond yields will be of particular significance for the SA Reserve Bank, which starts a three-day policy meeting on Tuesday, under pressure to follow its developed-economy counterparts and cut interest rates.

On the other hand, the Bank will not want to act too aggressively and prompt outflows, more rand weakness and even higher borrowing costs, at a time when SA is also facing the possibility of losing its last remaining investment-grade rating.

“Eighty-percent of the move we have seen in the past few days has been a result of market panic and is not reflective of the true state of the bonds,” said Reezwana Sumad, a research analyst at Nedbank.