Johannesburg - The JSE did not escape Monday's turmoil in the currency market when the rand plunged as much as 9%, the most since October 2008, in Asian trading.
READ: Why the rand will face more manic Mondays after plunging 9%
Financial shares in particular were severely affected, with the Financial 15 index losing more than 3% in the first fifteen minutes of trading.
However, share prices recovered as the rand rallied during the course of morning trade and by midday on Monday most major indices were back in the black. The big exception was the Financial index, which was still 1.47% down.
By midday the All-share index was only 0.16% lower at 48 036 points, but the Top 40 index was at stage 0.01% higher at 43 257 points. Both indices were almost 1% down in earlier trading.
The Industrial index was at that stage 0.17% higher, while resources shares were stronger. The Resources index gained 0.96% while the Gold index was again 4.44% higher, despite the gold price losing ground.
The big drop in the value of the rand overnight in Asia was ascribed to Japanese investors liquidating their South African positions on concerns about the South African economy, higher US interest rates and risk aversion about emerging markets.
READ: Emerging markets slump as China fuels risk aversion
These investors borrowed money in the past at ultra low interest rates and invested it in South Africa, earning much higher yields. It is known as carry trade.
Carry trades are however not as attractive any more because of the deterioration of the rand, which erodes all the profits made in South Africa. The same is true for investors in the stock market, because the rand is perceived a huge currency risk after dropping 25% in the past year.
All the major emergency currencies lost value, but none as severe as the rand. Reuters reported the rand fell as much as 10.3% at one stage in Asian trade to reach R17.9950/$, by far its weakest level ever. By midday it was however only 1.92% softer at R16.51 to the dollar.
Last week’s rout on world markets was started by the Chinese authorities setting the reference rate for the yuan lower for eight consecutive days, but the yuan stabilised after the reference rate was set somewhat higher on Friday and on Monday.
Chinese shares again fell by more than 2% after December inflation data on the weekend added to investor concerns about growing deflation risks.
China’s consumer inflation barely edged up in December while companies’ factory gate prices continued to fall, adding to concerns about growing deflation risks.
Bad news about the Chinese economy is normally bad news for resources shares, but the rand’s troubles supported these shares on Monday as commodity producers receive more in rand for their products which are mainly priced in dollar.
Banking shares were the big losers amongst financial shares on Monday with Standard Bank [JSE:SBK] and Barclays Africa Group [JSE:BGA] with huge overseas interests, both losing more than 5% at one stage.
Standard Bank earlier traded below R100 per share at R97.00, but recovered by midday and was at that stage only 3.07% lower at R101.19. The share price is currently more than 40% lower than the 52-week high of R176 set as recently as April last year.
Barclays Africa was as low as R123.00 but recovered somewhat and traded 3.67% softer at R127.16. In April last year the share traded at R199. FirstRand [JSE:FSR] was 2.14% lower at R38.02. Rand Merchant Insurance Holdings [JSE:RMI] was 3.43% softer at R35.15.
The big rout in Anglo American’s [JSE:AGL] share prices came to a halt on Monday morning and the share was 2.16% higher at R56.41 after losing 37.75% over the past 30 days and 72% over the past year.