South Africa's stock market experienced a steep decline yesterday, plunging more than 1% on the Johannesburg Stock Exchange (JSE), as geopolitical tensions fanned a prevailing risk-off sentiment among investors.
The JSE's benchmark index sank by 1.06% to 86 192 index points by lunchtime, marking its lowest level in a week and breaking a two-day streak of gains.
This downturn comes amidst escalated fears stemming from the Middle East, particularly following Iran’s missile attack on Israel, which has heightened concerns over potential military repercussions and disruptions to vital oil supply routes.
Traders are now grappling with the possibility of a broader conflict as the world awaits Israel's anticipated response.
Mike Gresty, fund manager at Anchor Capital, said SA markets were being impacted by a number of international and domestic events.
“I would say it’s a combination of a bit of profit taking after the remarkable surge in Chinese equities on its stimulus news – some questioning how much it will flow through to the real economy, a bit of profit taking in SA equities too which have also had a good month,” Gresty said.
“We need to see some evidence of the improving fundamentals for SA Inc that has been priced into shares since the GNU was established actually start to appear, and undoubtedly a risk-off tone globally as we await Israel’s response to Iran’s missile strike.”
The impact of these geopolitical uncertainties has been felt acutely across emerging markets, with resource-linked sectors on the JSE facing the brunt of the hit—down more than 4%.
Precious metals were particularly affected, with stocks such as Harmony Gold decreasing by 3.7% to R176.40 per share and Anglo American Platinum falling by 3.2% to R640.84 per share by early afternoon, tracking a broader decline in the sector.
Investec’s chief economist, Annabel Bishop, underscored that the mood in South Africa’s stock market reflects ongoing global investor caution.
This sentiment was compounded by the US Federal Reserve’s recent suggestions of a slower interest rate cut cycle, as stated by Fed Chair Jerome Powell, who indicated that “we are not on any pre-set course”, leaving the markets wary of what lies ahead.
Bishop further explained that while the US had initiated a significant cut to its interest rates—50 basis points—there was no guarantee that such abrupt changes would persist.
“There has been a drop in risk sentiment as the US Federal Reserve has outlined,” she stated, underscoring that a moderate pace should be expected going forward, which affects not just US markets but ripples through emerging markets such as South Africa’s.
Against this backdrop, the South African rand also felt the pressure, slipping to a two-week low as it breached the R17.50-mark to the US dollar.
This development came on the heels of an impressive rally earlier in the week, reminding investors of the volatile interplay between domestic currency fluctuations and global market movements.
Bishop noted that the future trajectory of South Africa’s interest rates will hinge significantly on incoming economic data, while recent comments from Powell indicated a careful consideration of the balance of risks moving forward, making any immediate optimism cautious at best.
The recent fluctuations in the rand are emblematic of the rapid changes in investor sentiment, particularly following Powell’s remarks that curtailed expectations for aggressive rate cuts.
BUSINESS REPORT