South African markets followed global peers and ended yesterday in the red as investors continued to fret about how the looming global recession would affect appetite in local stocks.
The JSE All Share Index fell 0.62% to 72 155.29 points by close of trading, mainly pushed down by tech stocks and resource-linked companies.
South32 led the losses in the commodity stocks, down 4.39% to trade at R46.58 per share followed by Thungela Resources and Anglo American Platinum, which lost 4.02% and 3.26% to trade at R246.60 and R1 621.40 per share, respectively.
The JSE lost its shine after the US markets also tumbled, with the Dow Jones losing 200 points and the S&P 500 and Nasdaq falling by more than 1% each.
Investors have been worried about the prospect of an economic downturn from the US Federal Reserve’s aggressive policy tightening moves to rein in inflation.
While policymakers hinted that it should soon be appropriate to slow the pace of interest rate increases, there is yet to be consensus about the terminal level.
BNP Paribas South Africa said yesterday that it expected a downturn in global GDP growth next year, led by recessions in both the US and the eurozone, with below-trend growth in China and many emerging markets.
BNP senior economist Jeff Schultz estimated that global growth will hit a low of 2.3% in 2023, which would be more a global downturn than a recession as global recession would involve real world GDP growth of less than 1% year-on-year nowadays.
“The bottom line is that we are expecting recessions, albeit shallow, in both US and European markets, a slower pace of global disinflation, and central banks that are compelled to keep rates in restrictive territory for longer,” Schultz said.
“We believe that an eventual peak in global rates will likely prove an attractive entry point for fixed-income markets by the first quarter of 2023 as global equities face a bumpier ride.
“China is perhaps the wild card here, as it attempts to carefully manage a gradual relaxation of its zero-Covid policy amid increasing infections, a weak property sector overhang and greater slack in its labour market.”
Schultz said that the outlook looked challenging for South African markets.
“Not least because major developed markets and trading partners are facing recession next year, but also owing to the country’s own structural growth rigidities and our view of a highly crimped short-term potential growth outlook,” he said.
“The risk of stagflationary conditions returning is real.”
Meanwhile, the rand fell to its weakest in one week, touching R17.54 against the US dollar as the greenback gained ground supported by a firm, hawkish stance from Fed officials.
By 5pm the rand was bid at R17.46 to the dollar, 19c lower than the same time the previous day.
The dollar strengthened yesterday as investors’ expectations of a pause in interest rate hikes started to fade in the light of several somewhat hawkish Fed speeches.
St Louis Federal Reserve Bank president James Bullard emphasised that the central bank still has much work to do before reaching its goals, warning that tightening conditions had a modest effect on inflation.
Markets are now pricing a 50 basis point rate hike in December, and a series of 25 basis point increases next year, a move away from the recent consecutive 75 basis points hikes.
Domestically, the South African Reserve Bank (SARB) is widely expected to continue its tightening policy at its meeting next week, with some economists predicting a hike as high as 100 basis points.
SARB Governor Lesetja Kganyago said recently that South Africa still has space to raise interest rates, citing the need to get inflation expectations more anchored around the midpoint of its target range of 3%-6%.
South Africa’s headline consumer inflation slowed for the second month to 7.5% in September, from 7.6% in August, but central bank forecasts show that it will only return to the 4.5% mid-point of the target range by the fourth quarter of 2024.
BUSINESS REPORT