Monday, 12 September 2011 - 20:01
S.African bonds fall on risk flight, stocks tumble
By Stella Mapenzauswa and David Dolan
JOHANNESBURG (Reuters) - South Africa's rand fell almost 2 percent to a near 5-week low against the dollar on Monday, the worst performer in a basket of EM currencies, on a global wave of risk aversion that also hit government bonds and sent yields soaring.
Stocks tumbled for the second straight session, falling more than 2 percent as investors hit index heavyweights such as MTN Group as part of a world-wide sell-off on renewed European debt worries.
The rand touched a session low of 7.4099 to the greenback -- its weakest level since August 9 -- and was at 7.40 by 1543 GMT, down from Friday's close at 7.2714.
It fell the most against the dollar among 20 emerging market currencies monitored by Reuters.
"There are just too many negative signals from the global backdrop at this stage, and with local bonds suffering on the back of risk aversion following recent strong rallies, the rand may be taking a hit on the back of that," said Anisha Arora, emerging market analyst at 4CAST.
"There is still feeling of a growing possibility of a rate cut, and the dollar index which the dollar/rand cross closely follows is above key long term trend level - both factors which only further weighs on the rand."
The flight to risk felled government bonds and some traders said the local debt market was also seeing a correction after a recent rally fuelled by growing expectations domestic interest rates could fall to help revive the sluggish economy.
The yield on the 2015 bond jumped as much as 21 basis points to 6.69 percent, its highest level since August 25 according to Reuters data. The yield on the 2026 bond added as much as 30 basis points to a session high of 8.205 percent, a level also last seen 2-1/2 weeks ago.
"I think it's more to do with what's come out of Europe over this weekend -- the nervousness surrounding Greece and the flight to quality away from emerging markets," WWC Securities head of bond trading Marten Banninga said, referring to fears of a debt default in the European state.
South Africa's Top-40 index of blue chips is now on track for its worst monthly performance since August 2010, and some investors say it has fallen too far, given that it has been hit hard by overseas factors, not local fundamentals.
"When the blood is flowing in streets that is when you have to buy," said Abri du Plessis, Chief Investment Officer at Gryphon Asset Management in Cape Town.
"Commodity indicators tell you there's something going on globally in economies that doesn't look too bad. It's negative sentiment that's driving the market."
The Top-40 index finished down 2.1 percent at 26,536.28, its second straight loss. The broader All-share index fell 1.9 percent to 29,855.75.
MTN Group, Africa's largest telecom, tumbled 4.5 percent to 137.50, with trade volume on the stock spiking to its highest level since May.
Platinum miner Impala Platinum, was another hard-hit index heavyweight, falling 4.4 percent to 162.00 rand.
FirstRand Group fell 2.2 percent to 20.05 rand. South Africa's second-largest lender has agreed to pay $5.4 million for Zambian commercial lender Finance Bank, Zambia's central bank said on Monday.
FirstRand is due to report its full-year results before the market opens on Tuesday.
Liquidity on the local debt market had been thin over the last couple of days, meaning some of the bond moves were overdone, Absa Capital trader Daniel Sabiston said.
"We've also got quite a bit of auction supply tomorrow. I guess all of those factors together are really exaggerating the moves," Sabiston added.
The Treasury will offer 1 billion rand worth of the 2021 bond and 1.1 billion rand of the 2031 issue at a weekly auction on Tuesday.Mon, 12 Sep 2011
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