South African stocks rebound from 7-year low on bank stimulus measures

South African stocks recovered on Friday from a more than seven-year low hit the previous session after the central bank announced a raft of emergency liquidity measures to ease the strain on banks from the coronavirus outbreak.

South African assets have come under great pressure as the novel coronavirus has spread around the world and some local banks have struggled to access short-term funds.

Read: Sarb announces new liquidity measures to support banks

On Friday, the South African Reserve Bank (Sarb) announced three changes aimed at the money market, which facilitates shorter-term borrowing by banks and the government, usually through instruments with durations ranging from overnight to 12 months.

Separately, the head of the Johannesburg Stock Exchange (JSE), which is Africa’s biggest and one of the top 20 in the world by market capitalisation, told Reuters the bourse was considering shortening trading hours and banning forms of short-selling to ease the growing liquidity crunch.

Friday’s measures follow a 100 basis point cut to the Sarb’s main lending rate on Thursday to help the flagging economy.

The market welcomed the steps that pushed the banks’ index 7.65% higher.

“South Africa has the most sophisticated banking sector on the continent and these measures are aimed at ensuring that the system functions smoothly,” Jacques Nel, an economist at NKC African Economics, said in a note.

The JSE’s Top-40 index closed just over 6% higher at 36 302 points, while the broader all-share index climbed 6.08% to 40 272 points. A host of firms saw their shares rally by more than 10% or 30%.

Resource stocks were among the big winners, with the index up 8.28% as precious metals rebounded as stimulus measures around the world curbed investors’ appetite for cash.

In the currency market, the rand also firmed in response to the Sarb’s stimulus measures.

At 1500 GMT, the rand was trading at 17.34 per dollar, 0.65% firmer compared to its previous close.

“The raft of policy measures from the Sarb today to seek to alleviate liquidity pressures has not caused much strength, but there has not been a run on the domestic currency today either,” said Investec chief economist Annabel Bishop.

She added the changes to the money market liquidity management strategy of the central bank “benefited (South African) bonds somewhat”.

Bonds firmed, with the yield on the paper due in 2030 ZAR2030= was down 5 basis points at 11.670%.