Nicola Mawson
Stocks on the JSE began the week on the back foot, with the all share index falling as much as 1% and nearly dipping below the 76 000-points mark, dragged lower by resources, tech, and real estate shares on the back of heightened political risks in the country.
However, the rand held its own, by 5pm trading 0.4% stronger to R18.80 against the US dollar, buoyed by the strengthening of the gold price, which recently reached another all-time high.
Analysts yesterday said these mixed measures of market sentiment seemed to partially reflect the fact that investors were not that worried about the news that the ANC was seeking to form a Government of National Unity (GNU) after dropping below a majority in last month’s elections.
While the election process itself has been declared free and fair, there have been some complaints from smaller parties, with court action beginning, while the risk of severe civil unrest in KwaZulu-Natal remains a concern.
Chantal Marx, head of investment research at FNB Wealth and Investments, said a weaker dollar was pushing investors into what are seen as safe investments, such as gold and cash.
Gold prices rose 0.5% to above $2 300 (R43 239) per ounce yesterday, following a sharp decline last week after stronger-than-expected US jobs data slightly tempered expectations of an early interest rate cut by the Federal Reserve (Fed) this year.
“Renewed dollar strength at the start of the year did little to curtail the gold bull run, but we do foresee the possibility of support from a weakening dollar should investors again become more positive on possible interest rate cuts by the Fed later this year,” Marx said.
“This scenario remains in the balance, however, as there is a possibility that the Fed may cut later and by less than many other global central banks, resulting in a stronger US dollar.”
Although no cut in the Fed’s interest rate is expected at the Federal Open Market Committee meeting on Wednesday, markets will focus on the accompanying statements to judge if a softening in tone has occurred
Amid the political uncertainty prevailing as a result of the uMkhonto weSizwe (MK) Party challenging the election results and applying to interdict the swearing-in of members of Parliament, Chief Justice Raymond Zondo confirmed yesterday that the first sitting of the National Assembly, where the next president of South Africa and Speaker of Parliament will be elected, will take place on Friday.
Various political parties, while able to join the GNU, have shown differing responses, with some initially stating that they would not join, while others are awaiting the details of the agreement.
Investec chief economist Annabel Bishop said while the approach has been seen as sensible by and large, market concerns linger on the length of the process, and the commentary coming out from various parties has also had some market impact, adding to the elevation in political risk.
“Markets are seeking stability, politically, in the governance of the country and in its policies, including the need for fiscal consolidation, independence of the Reserve Bank and the judiciary, as well as free markets and protection of property rights,” Bishop said.
“The rand will remain beholden to both global and domestic events, with Parliament due to see its first sitting of the new dispensation just after the middle of the month, and President Cyril Ramaphosa expected to be voted in again as president.”
Meanwhile, Future Forex CEO Harry Scherzer said if political parties successfully form a stable GNU, any further decline in the rand was likely to come from a stronger dollar, which looks set to continue through the rest of the year and beyond.
Scherzer cited, among others, sticky inflation as affecting the dollar as consumer prices have led to persistently high interest rates.
BUSINESS REPORT