As four more South Africans tested positive for coronavirus, analysts were left contemplating more volatility in local markets after the JSE suffered its worst day since 2008 and worldwide selling sparked by the pandemic gave no sign of easing any time soon.
The latest market bloodbath — which saw the rand trade in a range bigger than R1/$ in a matter of a couple of hours — was sparked by a weekend dispute between two of the world’s biggest oil producers, helping to drive prices down by the most since the Gulf war in 1991.
Sasol, whose share price had already been battered by a credit downgrade to junk in the midst of its troubled Lake Charles Chemicals Project in the US, tumbled more than 50% at one point. European stocks fell the most since the days following the Brexit vote in 2016, while the US S&P 500 fell so fast at the opening bell that trading was suspended automatically to prevent panic selling.
Markets across the globe have been on a downward spiral as the outbreak of the virus spread beyond China and threatened the global economic outlook as factories came to a standstill and holidaymakers cancelled travel plans. Measures last week, including a surprise 50 basis point cut in interest rates by the Federal Reserve, failed to calm investors’ nerves.
The rand, often used as a barometer of investor sentiment towards emerging markets, had a wild morning even before SA traders had woken up. It slumped 8.4% to R17.0029/$ at about 3am local time and about two hours later was back at R16. The The Australian dollar also suffered a “flash crash”, dropping about 5% in 20 minutes to its weakest level since 2009.
By 6.50pm on Monday, the rand was at R16.0529/$, down 2.48% on the day. It breached R22 against the pound, its weakest since the middle of 2016, before reaching 3.26% weaker to R21.0761/£.
“The rand crumbled as the world continues to be gripped by panic over the Covid-19 virus,” said Travis Robson, co-head of IG Markets SA. “Further volatility in the currency is expected as investors move to safe-haven assets,” he said.
All the confirmed cases of the virus in SA were part of a group of 10 people who travelled together to Italy, health minister Zweli Mkhize said on Monday.
The JSE all share index crashed 6.23% to 48,819.55 points on Monday, for its worst one-day performance since October 2008. The chemicals index, reflecting the Sasol rout, was the biggest decliner, followed by the household goods and mobile telecommunications indices, whose hard-hit members included Steinhoff and MTN respectively.
Brent crude earlier fell as much as 31.5% to $31.02 a barrel and was last down 20.37% to $36.24.
Lower crude prices could provide some relief to consumers by making it less likely that the rand’s weakness will translate to more expensive petrol locally. It might also provide room for the Reserve Bank to at least avoid hiking interest rates, if it was unwilling to cut them amid a global sell-off that might spark more weakness in local assets. The Bank’s next rates decision is due on March 19.
“Ultimately, the oil price cuts could bring some relief to the already constrained consumers,” said FNB Wealth and Investments portfolio manager Kabelo Tshola. “It could free up cash flow to increase the consumption side and the investment side from business but ultimately when there is no confidence, as we are seeing across the globe, the domestic and the global economies are going to struggle to reignite.”
A continuation of the coronavirus crisis and oil-price war could see the rand drop further to R17.80/$, while positive local data and improved international environment may push it stronger towards R15.20/$, Tshola said.
The oil slide was initially driven by a collapse in an alliance between Russia and Opec which had kept prices in check, after the former agreed to go along with a proposal to cut production to protect the price in the face of falling demand due to the virus outbreak. Saudi Arabia then escalated matters further by cutting its prices, sending shock waves through the market.
Derivatives trades indicate that the rand is set for more wild swings in the coming week. Its one-week implied volatility against the dollar was at 28.4% on Monday, second only to the Russian rouble among 23 major currencies tracked by Bloomberg.
“There is panic selling and recession fears across the board, all triggered by the coronavirus and that fact that Saudi Arabia is slashing oil prices,” said Unum Capital analyst Rob Pietropaolo. “Emerging-markets are usually quite reliant on the commodity complex which is now the lowest its been since the 1980s. There is a lot more risk attached to being an investor.”
With Tamar Kahn
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