China is sending shockwaves through South African markets

play article
Subscribers can listen to this article
The JSE.
The JSE.
Getty Images
  • The JSE's All-Share Index has posted its worst quarter since the first three months of 2020 amid concerns about China.
  • An energy crunch is weighing on China’s economic growth, which will impact demand for commodities.
  • To make matters worse, inflation is rearing its head in South Africa. 

South African stocks are feeling the pain coming from China.

The JSE's All-Share Index has posted its worst quarter since the first three months of 2020 amid concern about an energy crunch weighing on China’s economic growth and Beijing’s regulatory crackdown on key sectors including technology. China is the biggest buyer of South African raw materials.

With the 18-month rally in industrial metals on shaky ground, and the Federal Reserve poised to start scaling back stimulus, investors are preparing for more volatility in the FTSE JSE Africa All Share Index.

“The key value drivers, in terms of the currency and the commodity bull market, are weaker than they were a year ago,” said Peter Brooke, the Cape Town-based head of macro solutions at Old Mutual Investment Group, which oversees about $40 billion. “We have a big chunk of our markets linked to China.”

The Africa All Share Index slipped 3% in the first quarter - or more than 8% in dollar terms - and extended the decline on Friday.

The technology sector was the biggest decliner as China’s regulatory crackdown cast a shadow over index heavyweights Naspers and Prosus, which together account for 13% of the benchmark index’s market capitalisation.

The two companies hold a 29% stake in Hong Kong-listed online giant Tencent, which has plunged 21 since the end of June.

There was also a retreat in industrial and precious-metals prices since mid-September that hit miners, with diversified titan Anglo American sliding toward its steepest monthly drop since December 2015.

Prices from iron ore to rhodium have plunged as China imposed curbs on steel production and property developments. Platinum, where South Africa accounts for about 70% of global supply, has fallen 30% from its 2021 peak.

“Retreating precious-metals prices will continue to drag on South African equities, notably in the materials sector, given the country’s exposure to platinum, palladium and gold mining,” said Bloomberg Intelligence strategists Gaurav Patankar and Nitin Chanduka.

To make matters worse, inflation is rearing its head. The five-year breakeven rate - a gauge of bond investors’ expectations of price increases over the period - climbed to the highest level since June 2019 this week.

That may force the central bank to start raising interest rates. And with a struggling economy making it difficult for companies to recoup cost increases from customers, bottom lines may suffer. 

- With assistance from John Viljoen and Colleen Goko.

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
Rand - Dollar
Rand - Pound
Rand - Euro
Rand - Aus dollar
Rand - Yen
Brent Crude
Top 40
All Share
Resource 10
Industrial 25
Financial 15
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Voting Booth
Facebook is facing a fresh crisis after a former employee turned whistle-blower leaked internal company research . Do you still use Facebook?
Please select an option Oops! Something went wrong, please try again later.
Yes, the benefits outweigh the risk for me
25% - 225 votes
No, I have deleted it
46% - 422 votes
Yes, but I am considering deleting it
29% - 261 votes