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Market slump may persist until US rates rise, SA bank says - as it happened

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24 Aug 2015

There's blood in the markets and emerging markets are the worst affected, say the analysts at Overberg Asset Management.

READ: Five reasons why the rand is battling

24 Aug 2015

Nedbank CEO Mike Brown said market prices may continue to fall until a US Federal Reserve rate increase prompts investors to review their outlook. After an increase, “there could be some reassessment of the risks” in both emerging and developed markets with some investors being attracted by lower prices in developing nations, he told Bloomberg.  “Nedbank has very little direct exposure to rand weakness, with the impact likely to be felt through higher inflation and therefore interest rates over time,” Brown said. “We expect our clients to likely be more cautious.”

24 Aug 2015

WATCH: Wealth Migrate President Dr Dolf de Roos explains how using crowd sourcing, ordinary South Africans can avoid investing in the stock market and rather buy property overseas, which he believes can bring better returns.

24 Aug 2015

Asked what the rand will do going forward, De Roos told Fin24: "You're asking me if I have a crystal ball. And the truth is, I do have a crystal ball. But unfortunately, history has shown it to be no more accurate than anyone else. So I don't know the answer to that. ... I agree that today it's worse to ship money overseas (to invest in property) than it was perhaps a month ago. But according to these economists (that he's heard), it's going to get worse. So you're better off shipping it out at R14/$ than who knows, R15/$, R16/$ or R17/$."

24 Aug 2015

De Roos: Now they want to make their exports more affordable to foreigners, so the government decided to lower the currency. Now, they’ve got to fix the exchange rate and many countries in the past had that, including South Africa at one stage and New Zealand and Australia. But we got wise and realised that it’s far better to let market forces determine the value of your currency. I predict that one day, China will do the same.

24 Aug 2015

De Roos: The Chinese currency has fallen; they’ve had a government mandated devaluation of their currency. It is not unexpected. Their economy has lost some of its gloss. It was booming for a long time. Annual growth year after year of 8% - that is huge. It kind of wasn’t sustainable.

24 Aug 2015

WATCH: Why China is hurting global markets

With the falloff with their currency and the realisation that their economy isn’t doing well and the fact that China buys so many products from other countries – raw materials, minerals, especially here from South Africa, (China’s economy) is having a flow-on effect, says  Wealth Migrate President Dr Dolf de Roos. 

24 Aug 2015

Oil’s worsening global surplus has driven prices down by more than 30% since May, according to Bloomberg. (The image below shows the price of Brent crude since December 2013 by Inet BFA)
Oil’s worsening global surplus has driven prices down by more than 30% since May, according to Bloomberg. (The image below shows the price of Brent crude since December 2013 by Inet BFA)<br />

24 Aug 2015

Brent crude has extended its downward slide to trade below $45 a barrel for the first time since March 2009 as stocks pile up and as Chinese demand slows. (See below image of Brent crude in the last 15 hours by Inet BFA)
Brent crude has extended its downward slide to trade below $45 a barrel for the first time since March 2009 as stocks pile up and as Chinese demand slows. (See below image of Brent crude in the last 15 hours by Inet BFA)<br />

24 Aug 2015

US stocks tumble

US stocks tumbled in opening trade on Monday, with the Dow plummeting more than 900 points as a global equity slump worsened following another big drop in Chinese stocks. About three minutes into trade, the Dow Jones Industrial Average stood at 15 537.98, down 921.77 points (5.6%). The broad-based S&P 500 sank 91.65 (4.65%) to 1 879.24, while the tech-rich Nasdaq Composite Index fell 368.52 (7.83%) to 4 337.52. - AFP.

24 Aug 2015

Emerging assets dealt violent blow in worst stock run since 2011: “It makes it very hard to risk manage in an environment of such violent moves,” said Michael Wang, a strategist at Amiya Capital in London who favors Korea, Taiwan and India, while warning against Brazil and Southeast Asia. “Emerging markets could trade lower in the absence of any policy moves from China or if the Federal Reserve goes ahead and hikes in September." - Bloomberg.

24 Aug 2015

“The characteristic of a funding currency means that you benefit from safe-haven flows in high-risk times, when your money is flowing back to where it was funded from,” said Esther Reichelt, a currency strategist at Commerzbank AG in Frankfurt. - Bloomberg.

24 Aug 2015

The dollar slumped to a seven-month low against the euro as most traders concluded the Federal Reserve will refrain from raising interest rates next month amid a global stock-market rout.  “Markets are very nervous about the growth outlook for China and the possible impacts on the dollar,” Georgette Boele, a currency strategist at ABN Amro Bank NV, said by phone from Amsterdam. The dollar fell 2% to $1.1610 per euro at 09:09 in New York (15:09 in SA), the weakest since January 22. It dropped 2.6% to 118.87 yen, the lowest since April 30. - Bloomberg.

24 Aug 2015

US index futures signaled losses will cascade in the world’s biggest stock market as the Nasdaq 100 Index contract hit its daily loss limit of 5%. In a broad selloff spanning all industries, stocks including Apple and Netflix slid at least 5.7%, while slumps in Gilead Sciences and Biogen indicated a selloff in biotechnology shares won’t abate. ConocoPhillips and Chevron lost more than 7.4% as crude fell further. Futures on the Nasdaq 100 fell 5% to 3 992.25 at 08:55 in New York (15:00 in SA). Contracts on the Standard & Poor’s 500 Index due in September slid 3.8% to 1 897.25 and those on the Dow Jones Industrial Average retreated 4%. “GDP growth in the US and euro zone economies just isn’t strong enough to prevent a global disinflationary shock from accumulating,” Thomas Thygesen, SEB’s head of cross-asset strategy, said by phone from Copenhagen. “People have realised there could be further weakness in the Chinese currency. They don’t seem in control of the situation and we could see feedback loops that haunt the US." - Bloomberg.

24 Aug 2015

Investec: We believe this market slowdown is set to continue, and there is no significant wall of cash waiting to drive them higher. We believe this is a very necessary correction to bring market valuations more in line with muted growth expectations.

24 Aug 2015

Investec: Local investors have become increasingly conservative, and foreign ownership of equities – after climbing rapidly between 2004 and 2011 – has stagnated at current levels (unsurprisingly given the flat returns in dollars and weak local environment).

24 Aug 2015

Investec: Locally, the economy remains under threat. While imports have been on the rise as platinum production normalises, we are seeing slowing profit growth from local companies on the back of negatives volumes. The South African Reserve Bank (SARB) has become increasingly more hawkish due to inflation concerns and raised the repo rate to 6% at its most recent monetary policy committee meeting. Indeed, rising energy and food prices will result in inflation breaching the 6% inflation band ceiling at and peak at close to 7% in the first quarter of 2016. The SARB may have been mandated to contain inflation, but given the weak economy, we believe there is risk of a policy misstep in South Africa.

24 Aug 2015

Clyde Rossouw and Sumesh Chetty, portfolio managers, Investec Asset Management: While many have been debating the timing of the first Fed rate hike on the back of a strengthening US economy, our analysis shows that the US economy is in fact intrinsically weaker than the reported numbers suggest. Growth and job creation over the last six years has been supported by the booming shale oil states, with the rest of the country still in decline.

24 Aug 2015

South Africa will conditionally introduce a 10% import tariff on steel imports to protect the struggling industry with the possibility of more hikes soon, an industry body said on Monday.Cheap imports from China are hurting South Africa's steel makers with ArcelorMittal South Africa warning it could close a plant that employs 1 200 people while smaller rival Evraz Highveld Steel and Vanadium has been placed in the hands of administrators to rescue the business. - Reuters.

24 Aug 2015

"Everyone seems to be selling off, and there’s panic," said Michael Woischneck who helps oversee the equivalent of $7.1bn at Lampe Asset Management GmbH in Dusseldorf, Germany told Bloomberg. “There’s no rational choice anymore, no rational reaction. The Americans will add to the European selling.”

24 Aug 2015

24 Aug 2015

Neil Irwin at the New York Times arguing that everything's great: "If you step back just a bit, what has happened in financial markets this week looks less like a catastrophe in the making and more like a much-needed breather when various markets had been starting to look a little bubbly."

24 Aug 2015

Investec: On the global front, the picture is not looking much rosier. China continues to print real GDP growth figures of 7%, but our analysis shows that the economy is actually contracting. Government has worked tirelessly to stimulate and avoid a hard landing, and has gone as far as suspending trading on half the Shanghai Composite Index. However, the reality of reduced infrastructure spend and a transition towards a consumption-led economy means that China will not be the driver of global growth. Investment, trade, output and sales growth remain sluggish, so it is unsurprising that China has recently engaged, at the margin, in currency devaluation. Unfortunately for our local economy, this means that the downward pressure on commodity prices may continue.

24 Aug 2015

Clyde Rossouw and Sumesh Chetty, portfolio managers, Investec Asset Management: Over the past few months we have seen markets start to retreat, and the most recent turmoil is a more violent expression of this. While this may come as a surprise to many, we have believed for some time now that the elevated market levels are not sustainable. There has been an all too large disconnect between the underlying weak global economic environment and the valuations attached to equities.

24 Aug 2015

Equities bloodbath ‘smacks of capitulation’: An equities expert discusses whether the selloff in equities signals a capitulation and if the decline may offer opportunities for investors.

24 Aug 2015

The rand’s slump to a record against the dollar has laid to rest any doubt traders were having about South African rate increases.  “They’ll probably be forced to hike interest rates just to keep the rand from weakening even further,” Ion de Vleeschauwer, chief currency dealer at Bidvest Bank Ltd., said by phone from Johannesburg. “It’s not good news for the local market because it’s going to put a massive damper on economic growth.” - Bloomberg.

24 Aug 2015

The world markets meltdown which continued on Monday spilled over to the JSE, dragging the All Share-index below 48 000 points.
READ THE FIN24 MIDDAY MARKET REPORT

24 Aug 2015

By midday, the All Share-index was 2.39% lower on 47 859 points and the Top 40-index lost 2.42% to 42 355 points. The Resources index was down 3.40% as commodity prices fell further, while the Industrial and Financial indices traded 2.40% and 1.82% lower respectively.

24 Aug 2015

Sasol lost 3.20% to R373.18 as the oil price dropped even further. Brent crude traded below $44 per barrel on Monday. Sasol lost 9.38% over the past seven days.
MORE ON SASOL

24 Aug 2015

Among the top shares Naspers, which has a big exposure to the Chinese economy, traded 2.07% lower on R1 587.38. The share price started sharply lower and was in early trading more than 4% lower on R1 521.90.
MORE ON NASPERS

24 Aug 2015

Gold shares continued with their recovery as precious metals are regarded a safe haven in times of financial turmoil. The Gold index gained another 0.86% despite the gold and platinum prices slightly lower.
READ: Gold only nugget amid JSE bloodbath

24 Aug 2015

Hermes Investment Management Head of Equities Andrew Parry discusses the selloff in equities signalling capitulation and if the decline may offer opportunities for investors.
WATCH: Equities bloodbath ‘smacks of capitulation’

24 Aug 2015

The rand is currently trading as follows:

<p>The rand is currently trading as follows:</p><p></p>

24 Aug 2015

"Fears over China’s economy have spooked the markets," Rand Merchant Trade analyst John Cairns said. "Nerves were on edge after Wall Street dropped 3% on Friday, but an 8% drop in Chinese markets has seen panic spiral." - Reuters.

24 Aug 2015

Selling escalated across emerging markets, taking MSCI's benchmark equity index to six-year lows and their biggest one-day loss since mid-2013. "This is a serious crisis of confidence in China. People are asking if this is the start of a Chinese credit crisis and I think risks of that have seriously increased," said Maarten-Jan Bakkum, investment strategist for emerging markets at NN Investments in The Hague. - Reuters.

24 Aug 2015

See the JSE Top 40's dramatic drop on Monday. (Graph: Inet BFA)
<strong>See the JSE Top 40's dramatic drop on Monday. </strong>(Graph: Inet BFA)<br />
See more on Inet BFA

24 Aug 2015

Bidvest: The Sarb will also keep a close eye on capital outflows and the risk that sustained capital outflows place on SA financial market stability.

24 Aug 2015

Bidvest: Despite a weak immediate level of pass through from the ZAR into inflation, rising inflation expectations suggest that the Sarb is under increasing pressure to implement interest rate hikes over the coming months. Granted economic growth is overwhelmingly weak but at some stage the rand losses become an even more negative factor for the economy than interest rate increases.

24 Aug 2015

Bidvest: It is important to remain cognisant that the recent price action has taken place with little to no short term drivers. Yes the European summer holidays are probably exacerbating the moves but the sustained ZAR losses highlight that there remains a case for a fundamentally weaker ZAR. We attribute this bias to 1) a still fragile ZAR, which is backed by twin current account and budget deficits, as well as low real interest rates, 2) a re-pricing of the Chinese growth outlook after on-going volatility in those markets, 3) a still elevated USD because the bias remains intact for Fed rate hikes this year and 4) increasing levels of focus on fragile EM currencies.
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