Johannesburg - The rand fell sharply on Wednesday morning in line with other emerging market currencies which also pulled the JSE lower, although the stock market stabilised somewhat later in the day.
As usual financial shares were the hardest hit by the struggling currency, and early in the day the Financial index was already more than 1% lower.
The rand fell more than 0.8% against the dollar early on Wednesday, reaching its weakest level in more than three weeks. By midday the unit traded at R15.75 per dollar after falling as low as 15.78. It is the weakest the currency has been since tumbling to a record-breaking R16.0485 on December 11, after President Jacob Zuma unexpectedly fired finance minister Nhlanhla Nene.
"Amid relatively thin trading conditions, the rand looks set to test resistance around the psychological 16.0000/dollar level soon," NKC African Economics said in a research note, predicting a 15.6500-15.8500 range for Wednesday.
By midday on Wednesday the All-share index was 0.75% down at 49 299 points after being as low as 49 069 points, while the Top 40 index lost 0.84% to 44 298 points. At that stage the Financial index was already 1.38% lower, but the Industrial index only lost 0.36%.
Although the gloomy outlook for the domestic economy played a role in the demise of the rand, international markets were again strongly influenced by concerns about the struggling Chinese economy.
The Chinese stock market stabilised after Monday’s crash due to massive intervention in the market by Chinese state funds, but the yuan is still under pressure against the dollar which is expected to spread to other emerging market currencies, particularly in Asia.
This will be bad for commodities as some of the country’s major export products, which are priced in dollars, will be more expensive. At midday the JSE's Resources index was already 1.79 % down, with some of the resources shares that recovered strongly on Tuesday losing most of their gains.
The offshore yuan, regarded as a gauge of developing-nation currencies, slid to a five-year low. The People’s Bank of China lowered its daily fixing by 0.22% to the weakest level since April 2011, spurring concern that the government is facing pressure to devalue its currency to revive growth in the world’s second-biggest economy. That’s raising the risk that developing nations will have to weaken their currencies to stay competitive.
Nescyn Presinede, a trader at Manila-based Rizal Commercial Banking which manages $1.8bn in trust assets, said a continued weakening in the yuan could trigger more volatility in financial markets. Other Asian markets will not stand still from a weaker yuan.
The dollar, which is still supported by the geopolitical uncertainty in the Middle East, received another boost after North Korea said it successfully tested a hydrogen bomb. The South Korean won reached its weakest level in three months.
The uncertainties continued to support the gold price which lifted steadily, with the yellow metal trading another 0.5% higher at $1 083 per fine ounce.
The Gold index on the JSE gained 3.55% to 1 195 points after reaching a low of 753 points as recently as August last year. Gold shares gained more than 27% over the last 30 days. Harmony [JSE:HAR] was again the top performer in the sector and gained 6.37% to R19.65.
Assore [JSE:ASR] and Anglo American Platinum (Amplats) [JSE:AMS], two of the top performers in the resources sector on Tuesday, retreated strongly on Wednesday. Assore, which gained more than 7% on Tuesday, lost 4.23% to R63.20. Amplats, which lifted more than 6% on Tuesday, at one stage on Wednesday was more than 5% lower at R173.00 but recovered and traded 0.91% lower at R181.80. Impala Platinum [JSE:IMP] was however 4.98% lower at R26.51.
At midday Anglo American [JSE:AGL] was the busiest share on the JSE; it lost 3.66% to R63.09. BHP Billiton [JSE:BIL] was 4.16% softer at R163.97.
In the financial sector FirstRand [JSE:FSR] lost 2.93% to R40.38. Before Wednesday’s trade the share was already 17% softer over the past 30 days. Sanlam [JSE:SLM] was 2.96% down at R56.40 and Old Mutual [JSE:OML] lost 1.81% to R37.94.
Naspers [JSE:NPN] lost 0.92% to R2 016.19 and Richemont [JSE:CFR] was 1.56% softer at R105.34. MTN’s [JSE:MTN] woes continued and the share lost 2.59% on Wednesday morning to trade at R133.61. It is now 19.68% lower over the past 30 days and 36.94% over the past 90 days.