South African markets closed in the red again on Wednesday, plunging to a three-month low in line with global peers as stocks continued to take a hammering across the world following a rout in the US.
The JSE All Share Index fell by 2.8% to 72 895 points, its lowest since December 16, extending losses for the seventh consecutive day.
Several sectors were in the red, led by resource-linked stocks, retailers and tech companies. Traders continued to assess the outlook for the interest rates’ trajectory, while also monitoring the US banking system which has put US stocks under pressure.
The renewed fears about systemic risk in the banking sector hammered the appetite for riskier assets.
An over 25% slump in shares of Credit Suisse after the top shareholder Saudi National Bank ruled out more aid sparked concerns that troubles that hit regional US banks have migrated across the Atlantic.
On the economic front, the US Labor Department’s PPI report showed that headline and core inflation slowed more than expected in February, opening the door for a possible pause in the Federal Reserve tightening cycle.
Investec chief economist Annabel Bishop said the markets had now factored in less than a 25 basis points hike, with cuts foreseen again for the second half of the year, after factoring in close to a 50 basis points hike in the Fed funds rate last week.
Bishop said the Silicon Valley Bank collapse, with the financial group heavily invested in US bonds, incurred heavy losses on the drop in value as US interest rates rose sharply, accompanied by bond yields.
“This has led to concerns that other financial institutions will be negatively affected by the higher interest rate environment, not necessarily due to holding unhedged long-dated US bonds as SVB did,” Bishop said.
“The high interest rate environment has weakened business activity and raised risk, which affects lending. Coupled with SVB’s collapse, this has negatively affected sentiment, with worries (including from regulators) that other banks risk runs on deposits.”
In South Africa, the SA Reserve Bank is likely to follow the Fed’s interest rate decision and also hike by 25 basis points or leave interest rates flat on March 30.
Meanwhile, the rand also weakened by 0.3% to R18.36 yesterday, but moved away from an over two-year low of R18.60/$1 touched last week, as the dollar weakened sharply after the turmoil in the US banking sector reduced expectations of larger rate hikes by the Fed.
BUSINESS REPORT