Fears of elevated inflation in the US and ongoing power outages in South Africa left the JSE in the red yesterday amid the possibility that rising prices would influence the Federal Reserve to continue hiking interest rates in December.
Stocks and the rand opened on the back foot yesterday as investors were gearing up for US inflation data later tomorrow, which is expected to remain elevated at 8%, down from 8.2%.
The US so far has hiked rates by 3.75% in the current cycle, while South Africa has only hiked rates by 2.75%, which has narrowed the interest rate differential between the two countries and supported rand weakness.
If the US Fed hikes rates, the South African Reserve Bank (SARB) will follow suit and continue its tightening policy as it needs to get inflation expectations more anchored around the midpoint of its target range of 3% to 6%.
Investors were also spooked by Eskom after it implemented Stage 2 rolling blackouts until further notice, citing a breakdown of a generation unit and the delay in returning another unit to service at the Duvha power station in eMalahleni, Mpumalanga.
The rand eased yesterday by 0.5% to R17.78 against the US dollar, while the JSE All Share Index fell by 0.6% to 69 011 index points by 5pm, mainly pressured by resource-linked stocks and tech companies.
Attention is turning to South Africa’s own monetary policy meeting this month, and there is greater expectation that the SARB will deliver a 100 basis points hike, which would bring the cumulative size of South Africa and the US interest rate hikes in line in the current cycle.
Sasol was 0.5% weaker at R307 per share, Sibanye fell by 1.4% to R42.17 per share, while Naspers and Prosus dropped 2.9% and 2.4% to R2 146 and R880 per share, respectively.
Sean Neethling, a portfolio manager at Morningstar Investment Management SA, said South African equities continued to screen as attractive, with current market prices discounting an especially poor outcome.
“There are, however, both broader global and South African-specific risks that could derail the investment thesis,” Neethling said.
“Investors should expect a relatively ‘bumpy ride’ in the current investment environment, with a wide range of potential short-term outcomes. While the environment remains tough, valuations on local equities are not particularly demanding,” he said.
BUSINESS REPORT