Sometimes a picture can speak a thousand words. Last weeks cartoon by Zapiro certainly brought out much heated debate around the country as Zuma’s case went to court. If I were to draw a cartoon to summarise the past week on the markets, I guess it would depict a boxing ring with the Rand being battered against the ropes by the US Dollar, the CEO of Old Mutual would be throwing in the towel, Zuma would be the referee and the Markets would be in a wrestling match between Slowing Global Growth and Value Opportunities.
South Africa - The rand plummeted to a five-year low on Thursday, battered by falling commodity prices and the unwinding of carry trade while bargain-hunting took local stocks to positive territory. The All Share Index was marginally up by 0.61%. There were net buyers in the market with the lower oil price being perceived as good for the inflation outlook. Resources gained 1.31% on the week as traders found value in these stocks at current prices and as a Rand Hedge. Financials which suffered earlier in the week managed to come back fighting with a return of 1.95%. Old Mutual’s CEO Jim Sutcliff became SA’s first sub-prime casualty when he resigned amid large write-downs in their US life business. Old Mutual Stock dropped 8% when the news first broke.
Gold and Platinum touched an 11-month and 20-month low respectively. The Platinum price is 50% off its highs at $1169. Gold was trading at $754. Oil continued to trade below the $100 a barrel mark at $96.
A stronger Dollar worldwide coupled with lower commodity prices assisted the Rand in hitting its lowest level against the Dollar since 2003. The Rand touched R8.28 to the dollar before settling at R8.14. We also lost ground to the Pound, now at R14.46. While the Dollar was strong, it remained unclear as to whether it was supported by fundamentals or if it is more likely that the dollar is just seeing a correction as are most asset classes. Currency analysts are expecting the rand to undergo a period of “extreme volatility”, exacerbated by a substantial retreat by portfolio funds from emerging markets. This movement has been reflected locally with Month-to-date figures reflecting that foreigners have sold almost R9bn of local portfolio assets.
Internationally the European Commission cut its economic growth outlook for the Euro zone for the rest of this year, and predicted no less than a recession for Germany, the region's largest economy. Markets however were a bit more optimistic with the UK and US markets ending the week up 1.12% and 1.05% respectively.
NFB Financial Services Group