JOHANNESBURG - South Africa’s financial markets had one of their best weeks last week as almost all financial assets recovered sharply.
Positive sentiment towards a much improved economy, after the opening of more sectors, as the country moved to level 3 of the Covid-19 lockdown last Monday, had kick-started a buying spree in financial assets.
Global and domestic risk-seekers had fled towards shares, bonds and the rand. Even listed property shares had started with a rally. It was as if the economy was in the dark after an “Eskom” load shedding turn off, only to be switched on again.
The cherry on the cake came late on Friday with the release of the US jobs report. It was expected that the US unemployment rate would have deteriorated even further during May to a record level of 19.8percent after the devastating number of 14.7percent in April.
Caused by the massive stimulation package of the Trump administration, buying by consumers started to return towards normal levels.
As a result, the economy had created 2.4million more jobs in May and the unemployment rate in fact came down to 13.3percent. It is now expected that the US might even move into a sharp V formation recovery in months to come. It is clear that the economy itself did not hurt, but was simply shut off. Therefore, it may be on its way to recover quickly. The inflation rate is at its lowest and companies had learned to be smarter and leaner.
In reaction to the job data the US equity market continues its strong rally. The Dow Industrial Index opened almost 900 points higher on Friday, with the S&P500 index breaking through the 3200 level, only 200 points from its highest mark. The Nasdaq 100 index indeed surpassed is previous record level of 9719 reached on February 19 this year and traded above the 9800 level.
On the JSE almost all indices ended the week on a quarterly high level. The all share index advanced with 8.4percent over the week as the index climbed 4239 points to close on 54722. The Resources 10 index jumped by 5.8percent, the Industrial 15 index accelerated 6.4percent. The two winners for the week, however, were listed property, gaining 20percent, and the Financial 15 index that traded up by 17.9percent.
The rand exchange rate improved just as impressively, especially as investors sold their safe haven assets, namely the dollar and gold. Against the dollar the currency traded 80cents stronger (4.5percent) on R16.83 against the dollar at the close on Friday, as foreign risky investors bought South African shares and bonds. Against the pound the rand improved by 1.8percent to R21.37 and against the euro it had appreciated by 3percent to R19.02.
On the capital market the R186 2030 bond also continues to improve as it traded on 7.49percent on Friday, down from 7.65percent the previous weekend. It has improved by 3.35percentage points from March 13, the day Moody’s downgraded South Africa’s sovereign government debt to junk. This is an improvement of 32percent.
This week, investors’ attention will focus on the release of the latest Sacci business confidence index. It is expected that it had improved from 77.8 in April to 83 last month. The unemployment rate for the country's first quarter this year will be announced tomorrow. It's expected that it has shot up from 29.1percent during the fourth quarter last year to 35percent.
Dr Chris Harmse: economist and chief investment officer, Rebalance Fund Managers.