Views Article – Sharenet Wealth

Africa, Forex

South African stocks approach six months low as recession fears rise

* Stocks slip as U.S. Treasury bond yield curve inverts

* Inversion classic omen of recession

* Rand weakens 1%

* Gold stocks gain from risk-off sentiment (Updates stocks, adds trader comment)

JOHANNESBURG, Aug 14 (Reuters) – South African stocks slipped to a near six-month low on Wednesday after the U.S. Treasury bond yield curve inverted for the first time since 2007, reflecting concerns over the outlook for the world’s biggest economy.

Both of the country’s major stock indexes weakened more than 2% following the inversion in the U.S. debt market, a situation where shorter-dated borrowing costs are higher than longer ones.

“When that yield inverts, historically, its quite a strong recession signal in the U.S.. That’s what’s spooking markets and creating this risk-off environment,” said Mark Loubser, a fund manager at Northshore Capital.

Risk-off refers to a shift in investor sentiment towards safer assets over riskier opportunities in emerging markets such as South Africa.

At 1430 GMT, the Johannesburg Stock Exchange’s broader all-share index was down 2.1% to 54,032 points, while the benchmark Top-40 index fell 2.35% to 48,285 points.

The rand weakened 1.35% to 15.3500 per dollar, as concerns about the global economy overshadowed improved local retail sales data.

Prior to the inversion, weak economic data and fears of inflation, global trade tensions and other risks such as the impact of Brexit had fuelled worries about the global economy to which South Africa is a major supplier of commodities.

South African gold stocks however bucked the trend as investors fled to safe haven assets. Harmony Gold was up 5.47% to 45.35 rand, Gold Fields rose 5.34% to 88.66 rand and Sibanye Stillwater gained 4.71% to 19.97 rand.

Bonds also weakened, with yields on the benchmark 10-year bond adding 6.5 basis points to 8.475%. (Reporting Onke Ngcuka; Editing by James Drummond)

South African Rand coins are seen in this photo illustration

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