The rand nose-dives

The rand extended its drop against the dollar on Friday, as investors were in a frantic panic, fearing that the Coronavirus could become a global pandemic, with fears over a possible Moody’s downgrade adding to the pressure.

By 16:35 on Friday, the rand was 0.79% weaker against the dollar at 15.6326. The All-Share Index was down to 51 283 points.

Despite what was said to be a bold 2020 budget, outlined by Finance Minister Tito Mboweni, on Thursday Moody’s warned that risks remain skewed toward a higher debt path for South Africa.

The National Treasury proposed in the budget on Wednesday that pay increases, benefits and promotions for the nation’s 1.3 million civil servants be limited, with plans to save the state R160 billion over the next three fiscal years.

However, Lucie Villa, Moody’s Vice President- Senior Credit Officer said the fiscal trajectory under the new budget is broadly similar to the Medium-Term Budget Policy Statement (MTBPS) presented in October 2019.

“However, it avoided introducing any broad tax-increasing measures given the weak growth environment. As a result, fiscal deficits will remain wide, around 6%-7% of GDP in the next few years, which will increase the government’s debt burden over the budget period.

“Moreover, uncertainty regarding the success of negotiations with the country’s unions to reduce the wage bill and potential contingent liabilities from state-owned enterprises (SOEs) mean risks to budget forecasts are elevated,” Villa said.

Karl Gevers, head of research at Benguela Global Fund Managers said the rand had reacted positively during the budget speech on Wednesday, so it is the Moody’s warning which has weakened it on Friday. 

“The rating agency is not sure if we can actually implement the budget and the rand has been under pressure for sometime given that there is a low growth outlook,” Karl Gevers, head of research at Benguela Global Fund Managers said.

Other market watchers said it is the global uncertainty of the COVID-19 shaking up the markets, more than the fear of a possible downgrading.

The virus, which has now claimed more than 2,800 lives and infected more than 83,000 people has put pressure on globally on businesses and supply chains, especially in China, the world’s second-largest economy after the United States. 

“The market is reacting to the virus spreading. For how long the rand will continue to be volatile we do not know, because there could be a cure tomorrow and all this would end,” Wayne McCurrie, senior portfolio manager at FNB Wealth and Investment said.   

Investment analyst Chris Gilmour shared the same sentiments. 

“What you are witnessing now is pure unadopted chaos on the global markets. People are looking for cover and they can’t find it anywhere.

Investors are now flocking towards the dollar. 

“Now this doesn’t happen a lot, but the dollar is what people are looking for, and I am sure that other emerging currencies are also taking strain,” Gilmour said.

Resources plunge

Resource stocks on the JSE that were hit on Friday were iron ore, manganese and chrome producer Impala Platinum (down 11.85%), Anglo American Platinum (12.91%), Assore (down 4.96%), diversified miner Sibanye Stillwater (down 11.81%).