The JSE and global markets could be in for a bumpy ride this week after Chinese authorities distanced themselves from the talk of phasing out the strict Covid-19 policy, which has undermined its growth prospects.
Global markets rallied on Friday on reports that the Chinese government is working on a plan to navigate its way out of its strict zero-Covid-19 policy.
On Saturday however, Chinese authorities denied this, leaving market players scratching their heads over what this week may bring.
The reports, which were never officially confirmed, read the world’s second-largest economy is working on a plan to end a system that banned individual flights for bringing in passengers infected with the Covid-19 virus, prompting a huge rally in commodities across the board, and boosting the rand to its biggest one-day gain in nearly five years.
China’s zero tolerance for the pandemic has generated concern of disruptions to the economy that is still recovering from more than two years of the pandemic.
The JSE all share index rallied 4.93% — the biggest one-day jump since March 25 2020 — to 69,305 points on Friday. Industrial metals led the gains as investors bet that the Chinese economy opening up would boost economic growth and demand for these materials.
“We need to focus on what’s not being said. Hong Kong, under threat of a shrinking economy and being usurped by Singapore ... knows that a zero-Covid-19 strategy is untenable, and has no choice but to open up — under the watchful eye of China,” said Harold de Kock, portfolio manager at Independent Securities.
“A slowing economy, which had become accustomed to double-digit growth, is now expected to only grow by 3.2% this year — too slow to alleviate poverty, high youth unemployment, and growing social unrest,” said De Kock. “The zero-Covid-19 policy is unsustainable, and everyone knows this. The challenge for Chinese authorities is how to remove the policy while not allowing Xi Jinping to lose face.”
The gauge of leading JSE-listed platinum and gold stocks surged the most since late-February, up just more than 8%.
Platinum gained the most in a month, up 4.93% to $960.50/oz, while gold added a little more than 3% to $1,680.20.
The rand, generally regarded as a barometer of investor sentiment towards emerging markets thanks to its liquidity, firmed 2.7% — the biggest one-day gain since mid-December 2017 on Friday evening to change hands at R17.8974/$. It strengthened 1% to R17.7493/€ and 1.4% to R20.2424/£.
Markets in Europe gained more than 2%, while in Asia, Hong Kong’s Hang Seng rallied 5%.
Meanwhile, the latest US nonfarm payroll reports showed that 261,000 jobs were added in October — higher than the market expectation of 200,000, while the unemployment rate was 3.7%, slightly above the expected 3.5%.
Though Friday’s October jobs report was mixed, analysts believe the numbers may indicate earlier hikes from the Fed are beginning to work their way through the system.
Friday’s moves follow a downbeat session in the market after US Federal Reserve chair Jerome Powell made it clear at a briefing after his latest 75 basis point interest rate hike that the central bank is more concerned about doing “too little” to tame persistently high inflation, than “too much”.
Investors have struggled to decipher comments from Powell regarding whether a tightening pivot — a point when the Fed will reverse course on its monetary policy, may come as the central bank fights to tame high inflation.
“While still solid, some cracks are starting to show in the jobs market. Layoffs are happening in some sectors that gained the most during the pandemic, such as warehousing, transportation and finance,” said RMB analysts.
While more layoffs are to be expected in the months ahead, the labour market is not cooling fast enough “to give the Fed a reason to pivot yet — suggesting tighter monetary policy will remain for the foreseeable future”, they said.
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