SARAH BULLEN in Johannesburg | Thursday 2.30pm.
BLACK CLOUDS are gathering over the Johannesburg Stock Exchange on Thursday as Wednesday’s 6,2% fall has accelerated, with 8,55% wiped off the market by 2.00pm.
With the contagion of what is being termed the ‘Russian flu’ hitting global emerging markets, the price of local stock is falling with increasing velocity. The financial index is leading the charge, having shed some 10,96% (1001 points), followed by the industrial index, which is 9,15% (594 points) down. The key R150 government bond has lost 66 basis points and is nearing the 20% mark, currently sitting at a 19,42% yield. The rand has not escaped, falling 24c to R6,61 to the dollar.
All indications are that Russia’s worsening economic woes are the point of origin of the current emerging market volatility, with the announcement on Wednesday that Russia has defaulted on a $250-million loan it owes to Credit Suisse First Boston.
Citadel Investment Services chairman Wikus Marais said that the Russian government’s weakness impacts on all emerging markets. The same investors tend to spread their investments in various emerging markets, he said. When the Russian government defaulted on a loan it triggered a broad-based sell-off of emerging market government bonds by these investors. The sell-off forcess interest rates in the affected countries up, he said, resulting in a decrease in domestic economic growth prospects which, in turn, depresses share prices — spreading the contagion to both bond and equity markets.
The real Russian fall-out, however, is likely to be in Europe, due to its close geographic link to Russia, where further losses are expected after the average drop of 2% for major markets on Wednesday. By 2.00pm London’s FTSE index had already shed 1,88%.
South Africa being a highly liquid market, Marais said, facilitates a rapid fall in share prices. “Whereas in some other markets sellers do not always find a taker, in South Africa there is always a buyer,” he said.
Many economists are predicting that, having had a 20-year bull run, South Africa is overdue for a market fall. A number of economists disagree, however, maintaining that the bear-run is a short-term emerging market fluctuation, and that local share prices will be vastly improved within a year.