The rand fell to a new, six-and-a-half-year low against the dollar on Wednesday as investors dumped high-risk assets on global recession worries and local stocks also plunged on falling commodity prices.
The Johannesburg’s Top-40 index dived by 5% to 18 452,18 points and the all-share index dropped by 4,6% to 20 288,62 points.
The rand weakened as far as R11,3045 per dollar, its softest level since April 2002 according to Reuters data. By 6.10pm, it was trading at about R11,26 per dollar, more than 5% weaker than its Tuesday New York close of R10,68.
”It has broken all sorts of levels and R12 a dollar looks more likely now. There’s continuous risk aversion and as long as stocks drop it is going to continue to be hammered,” said Ion de Vleeschauwer, chief dealer at Bidvest Bank.
The rand is among the worst hit by the global sell-off, largely because of South Africa’s large current-account deficit, which at 7,3% of GDP in the second quarter makes the economy highly dependent on foreign financing.
Foreigners have so far this year sold R41,66-billion-worth of local shares, after buying R61-billion-worth of stocks over the same period last year.
Government bonds also weakened sharply, with the yield on the 2015 bond up 44,5 basis points to 9,915% and that on the 2036 up 45,5 basis points at 9,245%.
”[The rand’s weakness] is extremely inflationary, and that is why bonds are also being hammered,” De Vleeschauwer said. ”The scope for lower rates has completely gone out the window. It will be difficult for the central bank to cut rates in this environment.”
The South African Reserve Bank left its repo rate unchanged at 12% in August and October after raising rates by 500 basis points between June 2006 and June 2008.
Falling metal prices weighed on the local bourse.
”It is sinking in to the market that we are probably into a global recession and that is pushing all commodity prices down and markets are falling as well,” said Abri du Plessis, chief investment officer at Gryphon Asset Management. ”We will probably go up tomorrow again, just a pullback and down again. It’s sort of a pattern developing.”
The world’s number-four gold producer, Gold Fields, took the biggest knock, shedding 8,54% to R64,03.
Bourse and mining heavyweight BHP Billiton dropped by 7,62% to R161,21, Anglo Platinum lost 6,81% to R465 and South Africa’s unit of the world’s top steel maker, ArcelorMittal, fell by 6,59% to R85.
Retail bank Absa lost 8,04% to R82,99 and financial holding company RMB Holdings fell by 7,77% to R19.
Cellphone operator MTN was 7,77% down to R89. — Reuters