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Johannesburg - South African stocks extended losses on
Thursday, tumbling more than 3% as investors sold everything from luxury goods
maker Richemont [JSE:CFR] to paper manufacturer Mondi [JSE:MND] on concerns
over a global slowdown, after the US Federal Reserve warned of a grim outlook
for the world's top economy.
The Top 40 - (Tradeable) [JSE:J200] index of blue chips was
down 2.9% at 27 190.54 at 09:18 GMT, having earlier fallen more than 3%.
The broad JSE All-share [JSE:J203] index was down 2.7%.
Market meltdown
A grim outlook for the US economy from the Federal Reserve
and signs of a slowing China and Germany drove world stocks sharply lower and pushed investors into safer currencies and government bonds.
European stocks tumbled nearly 4%, helping drag global
equities to a fresh one-year low.
The dollar rose to a seven-month high against major
currencies as a broad sense of aversion to risk swept through financial
markets.
The Fed set the ball rolling on Wednesday when it launched Operation Twist, a plan to lower borrowing costs by selling or not
renewing short-term debt in favour of longer bonds.
The move was expected, but the Fed's statement of the
rationale behind it was stark: There were "significant downside
risks" to the US economy.
"It seems the market doesn’t believe Operation Twist is
enough to kick start the spluttering economy ... (and) a very downbeat outlook... seems to have unsettled markets even further," said Ben Potter, market
strategist at IG Markets.
Concern was increased on Thursday when HSBC's China Flash purchasing managers' index showed the factory sector shrank for the third consecutive month in
September, pointing to a slowdown in the world’s second-largest economy.
Business activity in Germany also grew at its weakest pace
in more than two years in September and new orders fell for a third month.
World stocks as measured by MSCI were down nearly 2.5% to a
new year low, making for a more than 14% year-to-date loss. The more volatile
emerging markets stock index was down 4.7% for a 22% 2011 loss.
In Europe, where questions about the ability of the eurozone
to manage some of its countries' heavy debt remain, stock losses amounted to a
21% fall for the year-to-date.
The FTSEurofirst 300 fell 3.9%.
Japan's Nikkei closed down 2.07%.
Safety first
The mood drove investors to seek relative safety. The yield
on 30-year German debt sank to a new record low as investors bought the paper.
The 30-year German benchmark yield fell to 2.538%, passing
the previous lows seen in late August 2010.
Yields on 10-year US Treasuries , the target of Fed
activity, were down below 1.8%.
On currency markets, the dollar climbed to a seven-month
high against major currencies.
"The dollar's strength and the risk aversion that we have
seen in recent weeks have picked up steam," said Tohru Sasaki, head of Japan
rates and FX research at JPMorgan Chase.
The euro was at a seven-month low of $1.3462.
Indebted Greece, struggling to avoid default, made new
budget-cutting pledges on Wednesday aimed at securing the next slice of bailout
funding from international lenders.
"As ever, the question is, will these measures be implemented and maintained by the current government and the governments to come?" Societe Generale strategists wrote in a note to clients.
