South African financial markets are heading for one of their sharpest monthly sell-offs in years in March as the Middle East war triggers a global risk-off move, oil prices shoot up, causing inflation fears, and investors retreat from emerging market assets.
The rand has weakened more than 7% against the dollar so far this month, putting it on track for its worst monthly performance since May 2023, when South Africa was in the grip of load-shedding and US-sanctioned Russian cargo ship Lady-R mysteriously docked at the naval base in Simon’s Town after dark.
The JSE has fallen about 13% and is on course for its sharpest monthly drop since August 1998, during the Asian financial crisis.
The sharp reversal marks a dramatic shift in sentiment after a strong start to the year. The rand, which rallied 3.17% in December and 2.56% in January, also gained 1.27% in February, while the JSE rose 3.64% in January and surged 7% in February, building on a 4.39% rise in December.
The escalation of the Middle East conflict has rattled markets globally, driving Brent crude prices above $110 a barrel to near multiyear highs, stoking fears of persistent inflation and tighter monetary policy, and prompting a broad retreat from perceived riskier assets.
The rand’s sharp fall has stoked concern over imported inflation while higher fuel costs threaten household budgets and business costs alike. The JSE has posted broad-based losses, with the precious metals and mining index shedding 26.92%, the resources index 22.85% and the retailers index 14.25%. Even shares that initially benefited from higher commodity prices have given back gains.
With rate cuts now possibly off the table, “the rand is unlikely to find meaningful support from the interest rate differential in the months ahead”, said Citadel Global director Bianca Botes.
“The dollar index has held firm on safe-haven demand, with rising oil prices further complicating the Federal Reserve’s policy path and underpinning the greenback. A stronger dollar for longer is a headwind for emerging markets and South African assets broadly, tightening financial conditions and adding pressure to rand-denominated portfolios already navigating global risk aversion.”
Local bonds have not been spared with yields on 10-year blended paper up more than 100 basis points.
Monetary policy expectations have shifted sharply in response. The Reserve Bank held the repo rate steady at 6.75% at its March meeting, but the rand weakness and surging oil prices have revived speculation that policymakers may delay any rate cuts or even consider a hike if global pressure persists.
“Markets are likely to continue reacting to developments in the Middle East. Neither side is close to a durable agreement: Washington wants Iran’s nuclear programme dismantled, while Tehran refuses to trade its enrichment rights or strategic control of the Strait of Hormuz,” said Botes.
“Iran’s five-point counteroffer, particularly its demand for Hormuz sovereignty, is a statement of intent rather than a negotiating position.”
Iran’s counteroffer sets out its core conditions for a ceasefire, including a halt to attacks, compensation for war damages and recognition of its control over the Strait of Hormuz.
“The seesaw price action of the past three weeks, with oil falling on ceasefire rumours and rebounding as proposals are rejected, is expected to persist. Until verified, direct contact occurs and progress is made on core issues, risk premiums and volatility are likely to remain elevated,” Botes said.
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