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Johannesburg - A trading pattern looming in stock charts suggests a three-week selloff that drove South African shares to a seven-month low still has room to run.
The FTSE/JSE Africa All-share index slipped 1.5% by the close in Johannesburg on Friday for the biggest weekly decline in four years. The gauge is down 11% since its record high on April 24, entering a so-called correction, amid a rout in emerging-market stocks spurred by anticipation of the first US interest-rate increase since 2006 and as economic data from China adds to fears of a global slowdown.
The average level of the All-share index over the past 50 days is close to dropping below its 200-day mean, a phenomenon known as a death cross. This last happened on November 18, which was followed by a 6% decline in the gauge over the next month.
The index will probably fall to levels last seen in October, according to Neels Heyneke, a technical analyst at Nedbank Group in Johannesburg. That implies a further decline of about 5%.
“In the very short term we should get a bounce from here, but I’m not calling a bottom on the market,” he said by phone on Friday. “We’ve just reached some short-term target levels here, but I would be surprised if we don’t go to the October lows.”
The slump in the stock market and a slide in the rand this week to its lowest level in almost 14 years underscores the challenges faced by President Jacob Zuma’s administration in reigniting investment and growth in the $366bn economy struggling with 25% unemployment and an electricity crisis. At the same time, slowing growth in China is threatening the top destination for South Africa’s raw materials.
“We haven’t seen China this weak in a long time and it’s a major market for South African mining companies,” Troye Brady, an analyst at Noah Capital Markets, said by phone from Johannesburg. “We’re in unprecedented times.”
