SA assets rallied last week with the JSE closing at a record high while the rand surged to its best level in nearly a year.
This was after a wave of corporate consolidation in the mining sector and a powerful rally in precious metals combined with dovish policy signals from major central banks to rekindle investor risk appetite.
The all-share index, the broadest measure of stock market performance, closed 0.51% up on Friday, adding to nearly 30% gains notched up over the past year, while the rand, one of the most heavily traded emerging market currencies, was little changed at R17.38/$.
Growing expectations of interest rate cuts by the US Federal Reserve and ECB have prompted a yield-hinting low into higher-risk assets.
A weaker-than-expected US jobs report at the start of August, which revealed downward revisions to payrolls, prompted markets to price in a rate reduction this month and two more by year-end.
“This saw markets quickly price in a slowing economy and brought expectations forward for a rate cut this month and two rate cuts by the end of the year,” said Sebastian Mullins, head of multi-asset and fixed income at Schroders Australia.
While US inflation matched forecasts in August, Mullins added that dovish rhetoric from Fed chair Jerome Powell and political reshuffling within the central bank have reinforced expectations of a policy pivot.
SA markets' bullish momentum was driven by booming precious metals, major mining mergers and rising hopes of interest rate cuts by central banks this week. With investors regaining risk appetite, all eyes now turn to the Federal Reserve and SA Reserve Bank for rate decisions on Wednesday and Thursday, respectively.
The JSE’s record close was broad-based, with the mining sector among the leading sectors. Mining stocks experienced strong rallies amid rising global demand for critical minerals, supporting the commodity-driven SA economy.
“The mining industry has been a hotbed of mergers, acquisitions and strategic consolidations over the past month,” said Citadel Global director Bianca Botes.
“Rising demand for minerals critical to electrification and clean energy, such as copper, lithium and platinum, is driving miners to strengthen their long-term positioning,” Botes said.
She pointed to last week’s merger announcement between Anglo American and Teck Resources, an SA-Canada tie-up that will create a $50bn-plus copper titan, as a striking example of the trend.
Market reaction was strong, with Teck shares surging on the New York Stock Exchange following the September 9 announcement, while Anglo American rose as much as 11%, “signalling investor approval of the consolidation strategy amid robust copper demand driven by electric vehicles, renewable infrastructure, and data centres”, said Botes.
Looking ahead, all eyes turn to Thursday’s monetary policy committee (MPC) meeting at the Reserve Bank. Economists are split on whether the central bank will pause or cut.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.