Johannesburg - Another round of frantic selling on the Chinese stock markets again sent world markets into a tailspin on Thursday morning, and the JSE lost more than 2% in the first 15 minutes of trading.
The local market stabilised after that and moved mostly sideways, but there are growing concerns that China’s economic problems could lead to another financial crisis similar to the one in 2008.
One of the world’s top investors, billionaire George Soros, told an economic forum in Sri Lanka on Thursday that global markets are facing a crisis and investors need to be cautious. He said China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world.
The current environment “reminds me of the crisis we had in 2008”, Soros said in Colombo.
By midday on Thursday the JSE's All-share index was 2.74% lower at 47 735 points, while the Top 40 index lost 2.80% to 423 912. This means the All-share index is already more than 5.5% lower than its closing level of 50 693 points on December 31 last year. The Top 40 index has already lost more than 6% since December 31, when it closed at 45 797 points.
The currencies of emerging markets were also under severe pressure and the rand broke through the important psychological level of R16.00 to the dollar, trading 1.47% softer at a new all-time low of R16.09 at midday. This is particularly bad news for financial shares, and by midday the Financial index was already 4.12% lower. All the major banks traded more than 4% lower.
Thursday morning’s panic selling was triggered by the Chinese central bank’s decision to lower the yuan's reference point against the dollar to the lowest point since March 2011. This sparked frantic selling in Chinese stocks, with markets being suspended for the rest of the day within 30 minutes after key indices tumbled more than 7%. This was the second time this week that the Chinese mark was closed early after indices dropped more than 7%.
Asian markets fell to a three-month low and the major markets in Europe were all more 2% lower by midday. Thursday morning was the eighth straight day that the People’s Bank of China cut its reference rate, fuelling concerns that tepid economic growth is prompting authorities to guide the currency lower.
While a weaker yuan would support China’s flagging export sector, it also increases risks for the nation’s foreign-currency borrowers and investors, heightening speculation that the slowdown in Asia’s biggest economy is deeper than official data suggest.
The World Bank warned on Wednesday that the global economy will sputter along this year as China’s slowdown prolongs a commodity slump and amid contractions in Brazil and Russia. The bank lowered its 2016 growth forecast to 2.9%, from a 3.3% projection in June. The world economy advanced 2.4% last year, less than the 2.8% forecast in June and slower than the 2.6% expansion in 2014, the bank said.
Weaker economic growth, particularly in China, is bad news for commodity shares and the Resources index lost 3.75% in morning trade on Monday. Anglo American [JSE:AGL], which started the day almost 15% lower over the past seven days, lost another 7.41% to R56.41. BHP Billiton [JSE:BIL] lost 3.59% to R156.90.
Gold however climbed above $1 100 an ounce for the first time in nine weeks on Thursday as investors channelled money into the safe-haven metal amid the global stock market rout, worries over the Chinese economy and heightened geopolitical tensions.
The spot price of gold rose to a nine-week high of $1 102.80/oz, before paring some gains to trade 0.26% higher at $1 096.79 by midday.
The Gold index, which on Thursday morning was already 8.41% higher over the past seven days and 34.4% over the past 30 days, gained another 4.5%. The star performer was again Harmony [JSE:HAR] which traded another 10.85% higher at R23.39. Before Thursday’s gain, the share price had risen 30.3% over the past seven days and 159.53% over the past 30 days.
South Africa’s two biggest insurers, Sanlam [JSE:SLM] and Old Mutual [JSE:OML], which both lost more than 8% over the past few days, were again among the biggest losers in the financial sector. Sanlam traded 5.15% lower at R53.02 and Old Mutual lost 3.69% to R36.30.
Standard Bank [JSE:SBK] lost 5.53% to R104.86 and FirstRand [JSE:FSR] was 5.02% softer at R38.02. Barclays Africa Group [JSE:BGA] gave up 4.72% to trade at R129.20 and Nedbank [JSE:NED] was 4.09% weaker at R174.09.
Naspers [JSE:NPN], which has huge exposure to the Chinese economy, lost 3.50% to trade below R2 000 at R1 930. That pulled the Industrial index 2.14% lower.
Sasol [JSE:SOL] lost 7.12% to R378.92 as the oil price is heading towards $30 per barrel. The price of Brent crude dropped 2.7% to $33.37 per barrel as concerns about economic growth continued to batter the oil price.