South African assets have gone from market darlings to misfires.
The rand, bonds and equities had a strong start to the year, benefiting from their relative safe haven status among emerging markets and rising commodity prices spurred by Russia’s invasion of Ukraine.
But the feeling has deteriorated.
The nation’s assets fell as investors price higher global interest rates, following hikes by the US Federal Reserve and the Bank of England this week. Concerns are also growing about inflation, as well as the surge in Covid cases in China, and what restrictions imposed by Beijing to fight the virus may mean for the global economy.
These graphs illustrate the reversal of the South African markets:
The rand is on course for a third week of declines, the longest losing streak since November. Its 8.5% decline over the past month – pushing it past the psychological level of 16 to the dollar – makes the currency the worst performer in emerging markets.
But some analysts, including those at Societe Generale and Anchor Capital, believe the losses have gone too far.
“Commodity support has not gone away and South Africa recorded a healthy trade surplus in March,” said Nolan Wapenaar, co-chief investment officer at Anchor Capital. “Rate hikes will also continue to strengthen the case for the rand, and we maintain our view that the local currency could strengthen again.
And South Africa’s rand debt hasn’t fared much better.
Nonresidents were expected to be net sellers of the country’s government securities for the first week since March. Foreigners had sold 8.6 billion rand ($536 million) worth of bonds on Thursday, based on settled trade data from stock exchange operator JSE Ltd.
Local-currency-denominated government debt headed for a sixth consecutive week of losses, its worst streak in eight months.
South African equities felt investor risk aversion more strongly than their emerging market counterparts, sliding into the worst weekly recession since October 2020.
Johannesburg‘s benchmark FTSE/JSE Africa All Share Index deepened this week’s selloff beyond 6%, a steeper pullback than the MSCI index of developing country stocks, which is down about 4%.
More than 90% of members of the South African benchmark stock gauge were down on Friday afternoon, helping to make it one of the world’s three worst performers this week in dollar terms among more than 90 major indexes tracked by Bloomberg
Read: South African stocks take a hammer blow in worst week since 2020